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Inflation has gradually ease In the broader US economy – and some areas of consumer spending, such as furniture and gasoline – they have even deflated last year
Deflation is when the prices of goods and services fall.
It’s rare for prices to fall from current levels across the economy, economists said.
However, the prices of many physical goods have fallen as supply and demand dynamics return to normal after the contortions of the pandemic era.
“Outside of commodity prices, I don’t think we’ll see price cuts,” said Mark Zandi, chief economist at Moody’s.
“(Companies) will hold their price if demand is soft, but price drops are very rare, and even in a recession, they’re not common,” Zandi said.
Also, energy and food commodity prices can be volatile, so it’s not uncommon to see ups and downs. The quality of consumer electronics is also constantly improving, a dynamic that statisticians equate with deflation, but which is only evident on paper and not in the store.
The prices of which goods have deflated
Average prices for “core” goods — goods that exclude food and energy — have fallen by about 1% since September 2023, according to the consumer price index.
Demand for physical goods surged in the early days of the Covid-19 pandemic. Consumers were confined to their homes and could not spend on, say, concerts, travel or dining out. Households also had more discretionary income, as they cut back on spending and had more money from federal aid.
The pandemic also took a toll on global supply chains, meaning goods weren’t reaching shelves as quickly as consumers wanted.
This dynamic of supply and demand caused prices to rise.
Now, those contortions have largely eased and prices have fallen as a result, economists said.
For example, home furnishing prices have fallen by around 2% over the past 12 months, as have electrical appliances (down 3%), hardware and hardware (4%), women’s outerwear (6%) and sporting goods (2%). , according to CPI data.
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Vehicles have also been “one of the main areas of commodity deflation,” said Sarah House, senior economist at Wells Fargo Economics.
New and used vehicle prices have fallen by 1% and 5%, respectively, since September 2023.
It’s only natural to see some “bounce back” in price since the vehicles saw one of their biggest increases in 2021 when inflation started to pick up, House said. In June 2021, for example, were the prices of used cars 45% more a year before
The US Federal Reserve also raised interest rates aggressively to combat high inflation, making financing costs more expensive for car buyers. That served to weaken demand, which also pushed prices down, economists said. The Fed began its cycle of interest rate cuts in September.
Outside of supply and demand dynamics, the strength of the US dollar compared to other world currencies It has also helped reduce the prices of imported goods, economists say. This makes it cheaper for US companies to import foreign items because the dollar can buy more.
Energy, food and consumer electronics
Outside of imported goods, consumers could also see “normalization” of food and energy prices, Zandi said. They are influenced by “commodity prices, currency values and trade relations,” he said.
For example, regular unleaded gasoline prices have fallen by about 16% since September 2023, according to CPI data.
Food prices are generally based on the unique dynamics of supply and demand. Categories such as apples, potatoes, frozen vegetables, and fresh fish and seafood are down about 11%, 4%, 2%, and 1%, respectively.
The quality of consumer electronics such as televisions, mobile phones and computers is also constantly improving, meaning that consumers generally get more for the same amount of money. The US Bureau of Labor Statistics, which compiles the monthly CPI report, a price drop in inflation data.
