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Inflation Falls Along with Economic Activity

Inflation is a key economic data point. If it’s too high, the value of people’s earnings is eroding. If it’s too low, it is a sign of potential economic weakness. Economic policymakers keep a close watch on the various inflation metrics.

The Bureau of Labor Statistics recently released the most broadly used measure of inflation, known as the Consumer Price Index (CPI). CPI fell 0.4% in March, bringing inflation down to 1.5% for the year. Policymakers at the Federal Reserve aim for 2% inflation, although they use a different measure.

The recent drop in oil was the main driver of the decrease last month. Excluding energy and food, the CPI was -0.1% in March. That decline is from the economic weakness brought on by the Great Pause as we fight COVID-19.

It is likely inflation will fall even more in April while the economy remains on lockdown. It should rise once we return to something closer to normal. It will be one of the data points worth monitoring to gauge how well the economy is recovering.

–Curtis Dubay, Senior Economist, U.S. Chamber of Commerce

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