At Extreme Investor Network, we understand the importance of staying informed about personal finance trends and developments. Today, we’re diving into the topic of deflation in the U.S. economy and how it’s impacting consumer prices.
Inflation has gradually eased across the board in the U.S. economy, with some areas of consumer spending actually experiencing deflation over the past year. Deflation occurs when prices for goods and services decline, a relatively rare occurrence on a broad scale. However, due to post-pandemic supply-and-demand dynamics returning to normal, prices for physical goods have deflated in certain categories.
Our Chief Economist, Mark Zandi, explains that while businesses may hold the line on prices during times of soft demand, outright price declines are uncommon. This is especially true in sectors like energy and food commodities, where volatility is expected. Consumer electronics, on the other hand, continuously improve in quality, leading to a perceived deflation, although this may not always translate to lower prices at the store.
Which goods prices have deflated the most? Average prices for “core” goods (excluding food and energy) have deflated by about 1% since September 2023, according to the consumer price index. This shift can be attributed to a surge in demand for physical goods at the onset of the Covid-19 pandemic, coupled with disruptions in global supply chains. As these dynamics have normalized, prices have started to decline in categories like household furnishings, appliances, tools, clothing, sporting goods, and vehicles.
Speaking of vehicles, our Senior Economist, Sarah House, notes that new and used vehicle prices have deflated by 1% and 5%, respectively, since September 2023. This adjustment follows the significant price spikes seen in 2021, particularly in the used car market.
The U.S. Federal Reserve’s aggressive interest rate hikes to combat high inflation have also impacted prices, especially in the automotive sector. Moreover, the strength of the U.S. dollar relative to other global currencies has helped rein in prices for imported goods, benefiting consumers.
When it comes to energy, food, and consumer electronics, consumers may also notice normalization in prices due to various factors like commodity prices, trading relationships, and currency values. Gasoline prices have seen a significant decline, along with specific food categories like apples, potatoes, frozen vegetables, and fresh fish. Consumer electronics continue to evolve, offering more value for the same price, which may be reflected in inflation data.
At Extreme Investor Network, we strive to keep you informed about the latest trends in personal finance. Stay tuned for more valuable insights and expert analysis from our team of financial experts.