Inflation is higher than policymakers would like across the broad U.S. economy. Yet, there are many sectors seeing the opposite dynamic: deflation.
Deflation means prices are declining for consumers. Conversely, inflation measures how quickly costs are rising for goods and services.
Consumers have largely seen prices deflate for physical goods, such as cars, furniture and appliances, economists said. They’ve also declined for some groceries and other things, such as travel, according to the consumer price index.
Why home goods prices have decreased
Demand for physical goods soared in the early days of the Covid-19 pandemic as consumers were confined to their homes and couldn’t spend on things such as concerts, travel or dining out.
The health crisis also snarled global supply chains, meaning goods weren’t hitting the shelves as quickly as consumers wanted them.
Such supply-and-demand dynamics drove up prices.
Now, however, they’ve fallen back to earth. The initial pandemic-era craze of consumers fixing up their homes and upgrading their home offices has diminished, cooling prices. Supply-chain issues have also largely unwound, economists said.
Prices on goods have been in “modest deflationary territory for a while now,” said Michael Pugliese, a senior economist at Wells Fargo Economics.
Physical goods prices have deflated in all but one month since May 2023, for example. Prices are down 1.3% in the past year, according to CPI data.
Perhaps the most prominent examples are items sold in retail stores, such as home furniture, said Stephen Brown, deputy chief North America economist at Capital Economics.
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Furniture and bedding prices fell 3.8% in the past year, and 0.5% just in the month from March to April, according to CPI data.
Meanwhile, prices for home appliances, such as laundry equipment, declined by 5.6% in the past year.
Additionally, they’ve decreased for goods such as dishes and flatware, down 6.5%; toys, down 7.4%; outdoor equipment and supplies, down 6.1%, and sporting goods, down 1.1%.
The U.S. dollar’s strength relative to other global currencies has also helped rein in prices for goods, economists said. This makes it less expensive for U.S. companies to import goods from overseas, since the dollar can buy more.
The Nominal Broad U.S. Dollar Index is higher than at any pre-pandemic point dating to at least 2006, according to Federal Reserve data. The index gauges the dollar’s appreciation relative to currencies of the nation’s main trading partners such as the euro, the Canadian dollar and the Japanese yen.
Downward pressure on goods prices has waned a bit in recent months as supply-and-demand dynamics have normalized, economists said.
Car, travel and food prices have also deflated
Prices for new and used vehicles have also deflated over the past year, by 0.4% and 6.9%, respectively. They were among the first categories to surge when the economy reopened broadly early in 2021, amid a shortage of semiconductor chips essential for manufacturing.
Grocery prices have also declined over the past year, in categories such as ham, frozen fish, eggs, milk, cheese, citrus fruits, coffee and potatoes. Notably, consumers have seen apple prices fall 12.7% in the past year amid burgeoning supply.
Each food item has its own idiosyncratic supply-and-demand dynamics that influence prices, said Mark Zandi, chief economist at Moody’s Analytics.
Broadly, though, “American consumers are getting much better at shopping and buying things where they’re getting a price break,” he said.
“Grocery stores have to respond to the price sensitivity,” he added.
Meanwhile, inflation on the services side of the U.S. economy has proven “more buoyant” than that of goods, Zandi said.
Relatively strong wage growth has played a big role, since services jobs tend to be more labor-intensive, economists said.
However, travel costs — which are part of the services side of the economy — have bucked that trend. Airfare, hotel and rental car prices have declined, respectively, by 5.8%, 0.4% and 10.1% since April 2023, for example.
Airlines have increased the volume of available seats for travelers by flying larger planes on domestic routes, which has helped push down prices, for example, according to Hayley Berg, lead economist at travel site Hopper.
There’s also been “quite a large correction” in the price of jet fuel, said Capital Economics’ Brown. Such fuel is a key input cost for airlines.
Elsewhere, some deflationary dynamics may happen only on paper.
For example, in the CPI data, the Bureau of Labor Statistics controls for quality improvements over time. Electronics such as televisions, cellphones and computers continually get better, meaning consumers generally get more for the same amount of money.
That shows up as a price decline in the CPI data.