For the first time in more than three years, inflation rates in the United States have fallen below the 3% threshold starting in July 2024. This marks a significant shift from previous trends, with some sectors experiencing price deflation, an actual decrease in prices, while others continue to see a deceleration in price increases.
The latest Consumer Price Index figures show that deflation has mostly affected tangible goods, including airline tickets, gasoline, and various food products. Joe Seydl, senior markets economist at JP Morgan Private Bank, refers to these cases as “micro pockets” of deflation within the economy.
Mark Zandi, chief economist at Moody’s, noted that the presence of deflation is increasingly becoming isolated from the widespread effects seen during the initial phase of the pandemic, which were intensified by disruptions to supply and demand.
Economic analysts warn that a broad-based and sustained decline in prices in the U.S. economy is unlikely without a recession. However, data shows significant deflations in specific consumer goods since July 2023. This includes a 0.3% decline from June to July 2024 alone.
During the height of the COVID-19 pandemic, when travel restrictions were in place, there was a surge in demand for physical goods as people focused on home improvements and purchasing home office supplies. This was exacerbated by supply chain disruptions that delayed product availability.
As pandemic conditions eased, consumer enthusiasm for home improvements waned and supply chain issues were largely addressed, leading to a cooling of prices. Significant price declines were observed for several household items over the past year, with prices for furniture and bedding falling by more than 5%, dishes and cutlery by about 8%, and prices for laundry equipment, non-electric cookware, toys, tools, and hardware all falling to varying degrees.
The apparel sector also saw price drops, with notable drops in men's and women's outerwear and in infant and toddler clothing.
In the auto sector, new and used vehicle prices have fallen 1% and 11%, respectively, since July 2023. Car and truck rental prices have fallen about 6%, a trend influenced by an earlier chip shortage that initially drove prices up.
Economists such as Sarah House and Aubrey George of Wells Fargo Economics attribute the current pressure on vehicle prices to improving inventories and higher financing costs, the latter a result of the Federal Reserve's interest rate hikes aimed at controlling inflation.
Additionally, a strengthening US dollar has helped moderate domestic prices by making imports cheaper, a dynamic supported by global economic trends and increasing imports from countries such as China.
Deflation has also been seen in sectors such as air travel, where ticket prices have fallen by about 3% over the past year, supported by lower jet fuel costs and increased seat availability. Similarly, food items such as cereals, rice, bread and various fruits have seen price drops, influenced by individual supply and demand factors and increased promotional activity by major retailers.
Electronics have also shown price reductions in official statistics, largely due to quality improvements over time, which are captured as price drops in the CPI data. This reflects a broader trend in which advances in technology are providing better value for consumers.