As Pandemic Curbs Spending, Consumer Prices Post Biggest Drop in Five Years

Consumer prices posted their biggest drop in five years as the coronavirus pandemic suppressed demand for goods and services.

According to the Labor Department, the consumer-price index fell a seasonally adjusted 0.4% in March — the largest monthly decline since January 2015. (For comparison, it rose 0.1% in both February and January.) The number was roughly in line with economists’ forecasts for the month, which saw a nationwide lockdown that led to a plunge in the costs of gasoline, hotel accommodations, airline tickets and apparel.

The report released today showed a 12.6% drop in categories associated with travel and transportation, as state governments imposed restrictions on people’s movement. The social-distancing limitations forced so-called “nonessential” retailers to cut back on open hours or eventually shutter their doors for the time being; as such, apparel dipped 2% last month after rising in each of the prior four months.

The Labor Department noted that its data-gathering for March was impacted by temporary closures or reduced business operations. Its ability to collect information via personal visits to stores was halted on March 16.

The figures were released two days after a Fitch Ratings report suggested discretionary spending was already being “adversely affected,” and the increased likelihood of a downturn could extend well into 2021. It projected that retail sales could decline up to 50% in the first half of 2020, with a slow rate of improvement through the summer if stores begin reopening in mid-May or early June. It also forecasted sales to be down mid- to high single digits in the second half of the year, while sales in 2021 could plunge 8% to 10% from 2019 levels.

It remains to be seen whether consumers will be able to return to pre-coronavirus shopping habits following months of disruption and panic-buying. Many retailers have thrown their resources behind e-commerce as brick-and-mortar closures extend through the end of the month — although a number have expressed worries that online gains won’t be enough to replace physical store sales.

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