Here is the deflation breakdown for June 2024 – in one graph

Inflation has fallen significantly since its peak two years ago. The US economy is even seeing some prices drop for consumers.

Deflation measures how quickly prices are falling for a consumer good or service. It is the opposite of inflation, which measures how quickly prices are rising.

Economists say physical goods are responsible for much of the deflation in the past year. This is happening as the supply-demand dynamics that spiraled out of control during the pandemic normalize.

Commodity prices (excluding those related to food and energy) – the so-called ‘core commodities’ – have fallen by 1.8% on average since June 2023, according to the consumer price indexan important measure of inflation.

“We’ve seen deflation in core goods across quite a few categories,” said Olivia Cross, a North American economist at Capital Economics.

“It’s a pretty broad base,” she added. “I think this is something that we expect to continue for a while.”

Prices for gasoline and many groceries have also fallen.

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

Demand for physical goods soared in the early days of the Covid pandemic as consumers were confined to their homes and unable to spend money on things like concerts, travel or dining out.

The health crisis has also shrunk global supply chains, preventing goods from hitting shelves as quickly as consumers wanted.

Such supply-and-demand dynamics drove up prices.

However, the environment has changed: The initial pandemic-era craze that saw consumers renovate their homes and modernize their home offices has waned, sending prices down. Supply chain problems have also been largely resolved, economists say.

Since June 2023, consumers have seen prices fall for goods such as home furniture for a living room, kitchen or dining room (down 4.9%), appliances (-3.6%), toys (-6%), tableware and cutlery ( -10.2%). %) and outdoor equipment such as barbecues and garden supplies (-4.3%).

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Car buyers have also seen new vehicle prices drop by more than 1% and used vehicle prices by about 10% in the past year. 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.

“Vehicle prices remain under pressure from improved inventories and higher borrowing costs,” Sarah House and Aubrey George, economists at Wells Fargo Economics, wrote in a note this week. (Higher borrowing costs are the result of the Federal Reserve raising interest rates to curb inflation.)

In addition to supply-demand dynamics, the strength of the U.S. dollar against other global currencies has 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 like globalization have also helped, such as importing more cheaper goods from China, Cross said. However, a shift to higher tariffs and less free trade could cause goods prices to rise “quite significantly”, she added.

Prices have also fallen for food, travel and electronics, among others.

According to CPI data, prices for food items such as ham, rice, potatoes, coffee, milk and cheese have fallen.

Each grocery item has its own supply-and-demand dynamics that can affect its price, economists said. For example, apple prices have fallen by 12% in the past year due to: supply abundancewhile egg prices soared in 2022, largely due to a historic and deadly bird flu outbreak.

Gasoline prices have fallen by 2.5% in the past year. The weaker recent prices were due to “tepid gasoline demand, increasing supply and falling oil costs.” according to to AAA.

Travelers have suffered airfare deflation (prices have fallen 5.1% annually) amid factors such as increased volume of available seats. Hotel prices have also fallen by 2.8% since June 2023, and car rental prices by 6.3%.

Consumers also appear to be more price sensitive, which has led retailers to become more cautious, economists said.

For example, there have been more price promotions at grocery stores lately, with a few “major retailers recently announcing price cuts that are likely to put pressure on competitors’ prices,” Wells Fargo’s House and George wrote.

Elsewhere, some deflationary dynamics can only happen 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.