Falling Inflation and Consumer Prices Indicate Broad Economic Decline in US

New data shows that consumer prices fell in March by the most significant margin in at least two years, further supported by another sharp drop in gas prices.

According to the United States Department of Labor, the US Consumer Price Index fell 0.3 percent in March after a 0.1 percent bump in February. This is the first month of decline in the last 13 months and, more importantly, the biggest such decline since the 0.6 percent drop in January of 2015. Falling gas prices, mobile plans, clothing, and both new and used cars all contributed to this new trend.

Amherst Pierpont Securities LLC chief economist Stephen Stanley comments that “Both reports would be arguments in a case that a dove would make for why the Fed needs to be more patient. It’s a relatively soft consumer performance in the first quarter, and you couple that with a pretty abrupt halt in the gradual uptrend in inflation. If I were a dovish policy maker, I’d say ‘what’s the harm in holding off a little bit and seeing how all this plays out.”

More specifically, retail sales show a 0.2 percent drop, last month after a 0.3 percent drop in February. The Commerce Department report also shows that six out of 13 major retail categories all showed lower receipt totals in March. In addition, services prices also fell, but only about 0.1 percent. Housing costs bumped up about 0.1 percent; lodging fell a whopping 2.4 percent (which is the biggest difference in this sector since October of 2013).

Regions Financial Corp chief economist Richard Moody comments, “The retail sales data are not adjusted for price changes which, as we have often noted, causes considerable misinterpretation of the underlying health of consumers. Ongoing improvement in labor market conditions, rising household net worth, and notably higher consumer confidence leave us with a much more constructive view of U.S. consumers than does the Q1 retail sales data.”

All of this, of course, is important as we approach the potential Fed interest rate hike, expected at the June meeting. For now, federal funds futures show only a 57 percent chance policy makers will, indeed, raise their target rate in the sector of overnight bank lending.

While some of the data is mixed, of course, analysts definitely note this is a certain sign of broad decline, overall.

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