US consumer prices post largest drop in five years amid coronavirus disruptions

US consumer prices fell by the most in more than five years in March and further decreases are likely as the novel coronavirus outbreak suppresses demand for some goods and services.

With the country virtually at a stand-still, the economy rapidly contracting and millions unemployed as state and local governments adopt stiff measures to control the spread of Covid-19, the respiratory illness caused by the coronavirus, economists are predicting the disinflationary trend will persist for a while or even a short period of outright deflation.

"The big concern right now is deflation," said Gus Faucher, chief economist at PNC Financial in Pittsburgh. "Deflation is likely to take hold over the next few months as businesses slash prices in response to much lower demand from the coronavirus outbreak and associated restrictions on movement."

The Labor Department said on Friday its consumer price index dropped 0.4 per cent last month amid a tumble in the cost of gasoline, and record decreases in hotel accommodation, apparel and airline ticket prices.

That was the biggest drop since January 2015 and followed a 0.1 per cent gain in February. In the 12 months through March, the CPI increased 1.5 per cent, the smallest advance since February 2019, after accelerating 2.3 per cent in February.

Economists polled by Reuters had forecast the CPI dropping 0.3 per cent in March and climbing 1.6 per cent year-on-year. Economists believe the economy entered recession in March.