Consumer prices remained unchanged in October amid weak demand from consumers battered by the COVID-19 pandemic.
Prices for most items, from used cars and trucks to apparel, rose or fell only slightly compared to September, the U.S. Bureau of Labor Statistics (BLS) reported on Thursday. All told, the Consumer Price Index was unchanged from September, the latest deceleration in a measure that’s shown increasingly modest inflation over the past few months.
- The Consumer Price Index was unchanged in October after rising 0.2% in September.
- The lack of inflation underscores sluggish demand in an economy trying to recover while still in the midst of the COVID-19 pandemic.
- While lower prices are welcomed by consumers, it’s a worrying sign for the economy.
- The core inflation rate fell to 1.6% year-over-year, even farther below the Federal Reserve’s target of more than 2%.
The core inflation rate, which excludes the impact of volatile oil and food prices and is often tracked year-over-year, softened slightly too, falling to 1.6% in October from September’s rate of 1.7%. That’s going in the wrong direction for the Federal Reserve, which wants to see inflation exceed 2% in order to fully restore economic health.
“We believe that near-term price pressures are likely to remain subdued,” James Knightley, chief international economist at ING, wrote in an online commentary Thursday. “The rising number of Covid-19 cases across the US means that containment measures are likely to be seen in more and more states over coming weeks.”
After the initial economic shutdown triggered by the coronavirus outbreak, modest inflation returned in June as demand surged. But as the number of COVID-19 cases surges this fall, demand is weakening. Although lower prices are welcomed by consumers, it is a worrying sign for the economy.
Prices for used cars and trucks fell 0.1% after rising an astonishing 6.7% in September. Demand for used vehicles had skyrocketed as car buyers started watching their budgets and interest rates remained low. At the same time, new car inventory fell over the summer. Even so, some brands saw sales increase in October. Prices for new vehicles rose 0.4%, following a 0.3% rise in September.
The prices of prescription drugs fell 0.4% after seeing no change in September, while the cost of hospital services dropped 0.6% after seeing an increase of 0.6% in September. Although the pandemic has overburdened hospitals with COVID-19 patients, other types of preventative care and office-based visits are being postponed.
Housing costs rose 0.1%, unchanged from the rates seen over the last two months. The pandemic has driven people away from densely populated urban areas. Those who work at home or remotely no longer need to be within close proximity to their employer. Rising home prices in some areas may be offset by falling prices elsewhere as people flock from large cities to suburban areas. However, there has been a decline in mortgage applications which may indicate the housing market is headed for a cooldown.
Apparel prices dropped 1.2% in October after a smaller, 0.5% decrease was seen in September. Gas prices dropped 0.5% after a modest 0.1% increase the previous month. And food prices rose 0.2%, better than the 0% rate seen in September.
ING’s Knightley said inflation “could surprise on the upside” next year, especially in the second half, if a COVID-19 vaccine unleashes pent-up demand.