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Inflation has Gradual relief The U.S. economy as a whole—as well as some areas of consumer spending like furniture and gasoline, even discouraged past year.
Deflation is when the prices of goods and services fall.
Economists say it would be rare for prices to fall from current levels across the economy.
However, prices of many physical commodities have fallen as supply and demand dynamics return to normal after the distortions of the pandemic period.
“Except for commodity prices, I don’t think we’re going to see price cuts,” said Mark Zandi, chief economist at Moody’s.
“If demand is weak,[companies]will keep prices the same, but outright price drops are very rare, even in a recession,” Zandi said.
Additionally, energy and food commodity prices can fluctuate, so up and down swings are not uncommon. Consumer electronics are also improving in quality, a dynamic that statisticians equate to deflation, but which may only show up on paper, not in stores.
Which items have dropped in price?
Average prices for “core” goods – those excluding food and energy – have fallen by about 1% since September 2023, according to the Consumer Price Index.
In the early days of the Covid-19 pandemic, demand for physical goods surged. Consumers are confined to their homes, unable to spend money on things like concerts, traveling or dining out. Households also have more discretionary income as they spend less and receive more cash from federal aid.
The pandemic has also disrupted global supply chains, meaning goods can’t get to shelves as quickly as consumers would like.
This supply and demand dynamic drives up prices.
Now, those distortions have largely eased, economists say, and prices have fallen as a result.
For example, prices for home furnishings have fallen by about 2% over the past 12 months, as have prices for appliances (down 3%), tools and hardware (4%), women’s outerwear (6%) and sporting goods (2%) about 2%.
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Automobiles are also “one of the key areas of commodity deflation,” said Sarah House, senior economist at Wells Fargo Economics.
Since September 2023, new and used car prices have fallen by 1% and 5% respectively.
Some “pull back” in prices is natural, House said, as car prices saw their biggest increases in 2021 when inflation began to explode. For example, in June 2021, the price of used cars was up 45% Since a year ago.
The Federal Reserve has also significantly raised interest rates in response to high inflation, making financing more expensive for car buyers. Economists say this weakens demand, which drives down prices. The Federal Reserve began its interest rate cutting cycle in September.
In addition to supply and demand dynamics, the strength of the U.S. dollar Relative to other global currencies Economists say it will also help control prices of imported goods. This makes it cheaper for U.S. companies to import goods from overseas because dollars can buy more goods.
Energy, food and consumer electronics
Zandi said that in addition to imported goods, consumers may also see a “normalization” in food and energy prices. He said they were affected by “significant fluctuations in commodity prices, currency values ​​and trade relations”.
For example, regular unleaded gasoline prices have fallen by about 16% since September 2023, according to CPI data.
Food prices are also generally supported by their own unique supply and demand dynamics. Prices in categories such as apples, potatoes, frozen vegetables and fresh fish and seafood fell by approximately 11%, 4%, 2% and 1% respectively.
The quality of consumer electronics such as TVs, cell phones and computers is also improving, meaning consumers are often getting more for the same money. The U.S. Bureau of Labor Statistics, which compiles the monthly Consumer Price Index report, equates it to price drop in inflation data.
