Energy
Monday, July 15th, 2024 4:23 pm EDT
Key Points
- Deflation in Consumer Goods: Inflation has significantly decreased since its peak two years ago, with some prices now even deflating for consumers in the U.S. economy. This deflation is measured by the Consumer Price Index (CPI) and reflects a decline in prices for physical goods, termed “core” goods excluding food and energy, by an average of 1.8% since June 2023. Economists like Olivia Cross from Capital Economics note a broad-based deflation across categories such as home furniture, appliances, toys, dishes, and outdoor equipment.
- Factors Driving Deflation: The decline in prices is attributed to normalized supply and demand dynamics post-pandemic. Initially, demand surged for home-related goods during the COVID-19 lockdowns, which drove up prices. However, as the pandemic effects wane, the frenzy to upgrade home spaces has subsided, cooling prices. Additionally, improved supply chains and the strength of the U.S. dollar against other currencies have further contributed to reining in prices for imported goods.
- Impact on Consumer Spending and Markets: Consumers have also seen deflation in other essential items like groceries, travel, and electronics. Grocery prices for items such as ham, rice, and coffee have fallen due to specific supply dynamics. Similarly, gasoline prices have decreased, as have costs for airline fares, hotel rates, and car rentals. Economists suggest that while this deflationary trend benefits consumers in the short term, broader and sustained price declines across the entire economy are unlikely without recessionary conditions.
In recent economic trends, inflation in the United States has notably subsided from its peak two years ago, even marking a period where certain consumer prices are declining. Deflation, the measure of price decreases for consumer goods and services, has become a significant trend in the economy, contrasting sharply with the inflationary pressures observed earlier. The decline in prices, particularly for physical goods, has been a focal point, attributed largely to the normalization of supply and demand dynamics that were disrupted during the pandemic. According to economists, core goods prices, excluding food and energy, have dropped by an average of 1.8% since June 2023, as reported by the consumer price index.
Olivia Cross, a North America economist at Capital Economics, emphasized the breadth of this deflation across various categories of core goods, suggesting a trend likely to persist in the near term. Notable declines include home furniture (down 4.9%), appliances (down 3.6%), toys (down 6%), dishes and flatware (down 10.2%), and outdoor equipment like grills and garden supplies (down 4.3%) since mid-2023. The decrease in prices extends to vehicles as well, with new car prices falling more than 1% and used vehicle prices dropping around 10% over the past year, following a period of earlier price surges linked to semiconductor shortages.
Economists attribute these deflationary pressures to several factors beyond supply and demand adjustments, such as the relative strength of the U.S. dollar against other currencies, facilitating cheaper imports and mitigating cost increases. Long-term trends like globalization, particularly increased imports of lower-cost goods from countries like China, also play a role, although recent shifts in trade policies could potentially reverse this trend.
Moreover, prices have decreased for essential items like food and travel. Grocery prices, influenced by individual supply dynamics, have seen declines in items such as ham, rice, potatoes, coffee, milk, and cheese, driven by specific factors like supply gluts or disease outbreaks affecting production. Gasoline prices have fallen by 2.5% due to lower demand and increased supply, while travelers have benefited from reduced costs in airline fares (down 5.1%), hotel rates (down 2.8%), and car rentals (down 6.3%) since mid-2023.
The cautious consumer spending behavior and increased price sensitivity have compelled retailers to adopt more competitive pricing strategies, including frequent price promotions and occasional price cuts to attract customers. However, it’s essential to note that some of the deflationary trends, especially in electronic goods, might be partly offset by quality improvements over time, which the Bureau of Labor Statistics factors into its Consumer Price Index calculations.
Overall, while deflation in consumer prices marks a shift from recent inflationary trends, economists caution that sustained broad-based deflation across the entire U.S. economy typically requires recessionary conditions, which are not currently projected.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/07/12/heres-the-deflation-breakdown-for-june-2024-in-one-chart.html
