Here is the deflation breakdown for August 2024 – in one chart

Inflation cooled in August, falling to the lowest level since February 2021, around the time the consumer price index began rising during the pandemic era.

This broad trend in the U.S. economy – declining but still positive inflation – is known as “disinflation.” It means that average prices of goods and services are rising overall, just more slowly.

However, there are also periods of ‘deflation’. Their inflation is negative, which means prices are falling.

Deflation has mainly occurred in physical goods such as cars and household appliances, but has also become visible in categories such as gasoline and miscellaneous groceries in the past year, according to the consumer price index.

That said, consumers should not expect — or advocate for — a broad and sustained price decline across the U.S. economy. That usually only happens when there is a recession, economists say.

Prices for ‘core goods’ – raw materials excluding those related to food and energy – are deflated by about 2% on average since August 2023, according to CPI data.

They fell 0.2% for the month, from July to August 2024.

The dynamics of falling commodity prices are largely due to a “normalization” of supply-and-demand trends that spiraled out of control during the pandemic, said Stephen Brown, deputy chief North America economist at Capital Economics.

Demand for physical goods soared in the early days of the Covid-19 pandemic as consumers were confined to their homes and unable to spend money on things like concerts, travel or dining out. Households also had more discretionary income due to the drop in spending combined with federal aid.

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“We saw a huge shift in demand, in terms of the kinds of things people were spending on, where you weren’t spending as much,” said Sarah House, senior economist at Wells Fargo Economics.

The pandemic has also thrown global supply chains into disarray, preventing goods from reaching shelves as quickly as consumers wanted.

Such supply-and-demand dynamics drove up prices.

However, these economic distortions have largely subsided and prices have deflated as a result, economists said.

For example, since August 2023, prices for furniture and bedding have fallen by about 5% and for appliances by 3%, according to CPI data.

They also fell for tools, hardware and outdoor gear, which are down 3%, toys, which are down 3%, and apparel, such as men’s suits and outerwear, which are down 10%, women’s outerwear, which is down 9% have fallen, and shoes that have fallen. 1%.

Prices for new and used vehicles have fallen by 1% and 10% respectively since August 2023. Rental prices for cars and trucks have fallen by about 8%.

Auto prices were among the first to rise as the economy largely reopened in early 2021 amid a shortage of semiconductor chips essential for manufacturing.

The recent declines in auto prices are largely due to “the inventory picture being better across the overall vehicle space,” House said. Higher borrowing costs have also reduced consumer demand, economists said.

Aside from the dynamics of supply and demand, the strength of the US dollar also matters towards Other global currencies have also helped keep prices for goods in check, economists said. This makes it cheaper for American companies to import items from abroad because the dollar can buy more.

Long-term forces such as globalization have also helped, increasing imports of cheaper goods from China, economists said.

According to CPI data, airfares have fallen by about 1% over the past year.

The decline is partly due to a drop in jet fuel prices, said Brown of Capital Economics.

Average jet fuel prices are downstairs about 21% from last year, according to the International Air Transport Association.

According to CPI data, prices for food items such as apples, potatoes, ham, coffee, rice, seafood and bananas have fallen. Each grocery item has its own supply-and-demand dynamics that can affect its price, economists said.

The deflationary dynamics of other categories may only play out on paper.

For example, in the CPI data, the Bureau of Labor Statistics checks for quality improvements over time. Electronics such as televisions, cell phones and computers are constantly improving, meaning consumers generally get more for the same money.

This is evident from a price drop in the CPI data.