MNI REALITY CHECK: US CPI Seen Down After Feb Stall on Virus

By Brooke Migdon

     WASHINGTON (MNI) - U.S. consumer prices likely stalled in February for the

first time in a year and may fall in March as the spread of COVID-19 weakens

demand, industry professionals told MNI.

     The Consumer Price Index was likely unchanged in February after rising 0.1%

in January, according to Bloomberg's survey median. Although prices used to

compute the index are collected by the Labor Department through the month,

positive U.S. cases of COVID-19 only started accelerating in the latter half of

February.

     Food prices accounting for 14% of the CPI basket will likely climb in

Wednesday's report, but reductions are anticipated in coming months as demand

weakens in trade partners like China. That's a swing from earlier this year when

global prices for proteins like pork were seen surging on strong Chinese demand

and a reduced supply triggered by African swine fever.

     "The outlook has changed significantly over the last two months due to the

slowdown from the coronavirus," John Newton, chief economist at the American

Farm Bureau Federation, said in an interview. "Any upward pressure that we may

have seen on food prices is likely moving in the opposite direction now."

     Price weakness may also appear in reduced trips to restaurants and other

stores as health officials step up warnings about social gatherings, Newton

said. Former government officials have told MNI weaker demand means Fed rate

cuts will be less effective in boosting growth than fiscal action to tide over

workers and companies who lose paychecks if businesses close.

     Consumer prices haven't posted a meaningful decline since March 2017 when

they were down 0.1%, and haven't fallen by more than that since a 0.2% decrease

in September 2015.

     --ENERGY SWOON

     Energy is another big source of weakness. Prices tumbled last month as

industrial production froze in China. This week crude oil prices had some of the

largest one-day declines in decades after OPEC and Russia shifted from seeking

production cuts to flooding the market.

     Core inflation is seen rising steadily in February, with prices of rents

and medical care and commodities supporting expansion. Core inflation should

increase 0.2% according to Bloomberg's survey median, the same as January.

     Rents continued to rise in February at a rate that outpaced the wage gains

of all private sector employees, said Mark Obrinsky, chief economist at the

National Multifamily Housing Council. The supply of homes and condominiums fell

short of demand last year, which continues to drive up prices, he said by email.

     Obrinsky expects the economy to weaken on coronavirus-related disruptions,

potentially driving down demand for apartments. The Fed's emergency 50 bps rate

cut last week will likely do little to spur the economy in the near term, he

said.

     Meanwhile, demand for medical supplies like surgical masks and respirators

has caused the cost of equipment to skyrocket. A five-pack of 3M N95 face masks

was selling for nearly USD200 during the last week of February according to

retail tracker Keepa. The U.S. last week revoked tariffs for medical supplies

from China due to heightened domestic demand and manufacturing shortages.

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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