U.S. 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, offsetting price increases related to shortages resulting from disruptions to the supply chain.

With the country virtually at a stand-still and the economy rapidly contracting 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 a period of disinflation or even 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 Friday its consumer price index dropped 0.4% last month amid a tumble in the costs of gasoline, hotel accommodation, apparel and airline tickets. That was the biggest drop since January 2015 and followed a 0.1% gain in February. In the 12 months through March, the CPI rose 1.5% after increasing 2.3% in February.

Economists polled by Reuters had forecast the CPI dropping 0.3% in March and climbing 1.6% year-on-year.

The general price level decline is expected even as the Federal Reserve has adopted extraordinary measures to stop the economy's free-fall. President Donald Trump last month signed a historic $2.3 trillion package to aid businesses and workers.

"The disinflationary impulse, along with the great disruption in economic and financial market activity, is a key reason why the Fed is unleashing vast new monetary policy stimulus," said Gregory Daco, chief U.S. economist at Oxford Economics in New York.

Restaurants, bars and other social venues have been shuttered. Clothing retailers have also closed shop as have some manufacturers, while transportation has been drastically scaled back, leaving millions of Americans unemployed.

Fears of a sharp global recession and an oil price war between Saudi Arabia and Russia have led to a collapse in crude prices. This is expected to offset price increases caused by bottlenecks in the supply chain.

The widespread business closures impacted March's CPI report, with data collection by personal visit suspended on March 16, the Labor Department said. It said data collection last month was also impacted "by the temporary closing or limited operations of certain types of establishments," leading to "an increase in the number of prices being considered temporarily unavailable and imputed."

That resulted in many indexes being based on smaller amounts of collected prices than usual, and a small number of indexes that are normally published were not published in March.

The dollar was little changed against a basket of currencies. Wall Street and the U.S. Treasury market are closed for Good Friday.

Subdued underlying inflation

Excluding the volatile food and energy components, the CPI dipped 0.1% in March, the first drop since January 2010. The so-called core CPI had increased by 0.2% for two straight months. Underlying inflation fell in March also as prices for new motor vehicles declined. In the 12 months through March, the core CPI rose 2.1% after increasing 2.4% in February.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target.

The core PCE price index increased 1.8% on a year-on-year basis in February after rising 1.7% in January. It undershot its target in 2019. With some components in the producer price index report that feed into the core PCE price index weakening in March, economists expect inflation pulled back last month.

March's core PCE price index data will be released at the end of the month. The closure of businesses could, however, impact the collection of inflation data in the coming months, making the reports unreliable.

In March, gasoline prices plunged 10.5%, the most since February 2016, after dropping 3.4% in February. Food prices rose 0.3% last month after surging 0.4% in February. Prices for food consumed at home increased 0.5%, matching February's gain.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3%. That followed a 0.2% gain in February. The cost of hotel and motel accommodation tumbled a record 7.7% last month. Airline fares dropped 12.6% last month, the biggest decline on record.

Health care costs rose 0.4% after edging up 0.1% in February.

Apparel prices dropped a record 2.0% last month after increasing 0.4% in February. New vehicle prices fell 0.4%, the largest drop since April 2018. But prices for used motor vehicles and trucks rose 0.8% after rebounding 0.4% in February.