In the United Kingdom, headline inflation declined to 1.5% y/y in March 2020 from 1.7% y/y in the prior month, given the impacts of the rapid decline in crude oil price on energy costs, and the great lockdown on clothing and apparels prices.
In fact, petrol pump prices alone fell by 5.1% y/y – the largest yearly drop since December 2018.
Meanwhile, weaker demand, occasioned by the COVID-19 induced rise in the unemployment rate, resulted in producers and retailers aggressively discounting prices in the period.
Stripping out volatile items, such as food and energy prices, core inflation only moderated by 10bps to 1.6% y/y.
Going forward, we expect consumer prices in the UK to remain largely suppressed. Our prognosis is hinged on the expectation of low crude oil prices, which should continue to weigh favourably on energy inflation, and by extension, headline CPI.
This week, manufacturing activities in the US dropped deeper into the contractionary terrain, as the PMI data slumped to its lowest level in more than 11 years in April 2020.
Specifically, manufacturing PMI printed 36.9 index points, down from 48.5 points in March.
Clearly, the disruption of the supply value chain, occasioned by the COVID-19 induced lockdown across the states, weighed significantly on export orders.
Meanwhile, the postponement of new orders, or in extreme cases, cancellation of orders, led to the retrenchment of workforces in the review period.
For the next few months, we see headroom for further moderation in manufacturing activities, due to the unrelenting spread of the Coronavirus, which continues to wreak havoc across the sector.
We like that the US government has continued to respond to the economic hardship that the COVID-19 outbreak has dealt the country with legislative relief packages (totalling over $2.00 trillion). This is expected to support a V-sharp recovery post-pandemic.