(CN) — U.S. wholesale prices posted their biggest monthly drop on record in April, as the coronavirus pandemic pushed down demand and inflation pressures.
The government’s producer price index, which measures costs before goods reach the consumer marketplace, fell 1.3% last month and 1.2% from a year ago. The monthly decline is the largest drop since tracking began in December 2009 and the annual decline is the biggest since November 2015.
The change can be traced to a 3.3% decrease in prices of goods overall – including a massive 56% decline in wholesale gasoline costs – and a 0.2% drop in the cost of services.
The historically cheap gas prices are linked to a huge drop-off in travel as the pandemic forced governors across the country to issue stay-at-home orders. So far, over 1.3 million Americans have been infected with Covid-19, the respiratory disease caused by the new coronavirus, and more than 82,000 have died.
Excluding the volatile food, energy and trade services categories, so-called core wholesale prices dropped 0.9% in April and are down 0.3% from this time last year, marking the first 12-month decrease since the government started tracking the numbers, according to a Labor Department report released Wednesday.
The annual decline in wholesale prices last month is in stark contrast to the Federal Reserve’s 2% yearly inflation growth target. The central bank already slashed its benchmark short-term rate to a range of 0% to 0.25% in March as the Covid-19 crisis outbreak began to take hold of the U.S. economy, and it declined Wednesday to cut interest rates to below zero.
Joel Naroff of Naroff Economic Advisors said decelerating inflation is “likely to be with us for a while.”
“Looking into the future, intermediate costs, especially for unprocessed goods, were off significantly and that points to continued downward pressure on producer and possibly consumer prices,” he said.
The report on wholesale prices comes a day after the Labor Department reported that the consumer price index — another measure of inflation that tracks changes in what American shoppers pay for a wide range of products — fell 0.8% in April and are up just 0.3% from the same time a year ago.
Not counting the always volatile food and energy categories, so-called core consumer prices dropped 0.4% last month — the largest monthly decline on record — and are up 1.4% from a year ago.
Michael Pearce, senior U.S. economist at Capital Economics, said the monthly decline in core consumer prices “was largely due to very big declines in the most-affected components linked to travel and tourism,” like hotel rates and airfare.
“It is not indicative of a broader deflation,” Pearce said.
Naroff said the decline “looks a lot more positive on the surface than in reality.”
“The majority of the drop came from energy. Excluding energy, costs fell modestly,” he said. “When you are living on savings and unemployment, the key expense is food, and that was where prices surged.”
Consumer food prices were up 1.5% in April, compared to a 0.3% increase the month before.