Here’s the deflation breakdown for June 2024 — in one chart

By Finance News On Jul 12, 2024

Inflation has throttled back significantly since peaking two years ago. The U.S. economy is even seeing some prices deflate for consumers.

Deflation measures how quickly prices are falling for a consumer good or service. It’s the opposite of inflation, which gauges how quickly prices are increasing.

Physical goods have accounted for much of the deflation over the past year, according to economists. This is happening as supply and demand dynamics that were thrown out of whack in the pandemic normalize.

Commodity prices (excluding those related to food and energy) — so-called “core” goods — have declined by 1.8%, on average, since June 2023, according to the consumer price index, a key inflation measure.

“We have seen core-goods deflation in quite a few categories,” according to Olivia Cross, a North America economist at Capital Economics.

“It’s quite broad-based,” she added. “I think that’s something we expect to persist for a little while.”

Gasoline and many grocery items, for example, have also seen prices pull back.

However, consumers shouldn’t expect a broad and sustained fall in prices across the U.S. economy. That generally doesn’t happen unless there’s a recession, economists said.

Why prices are deflating for goods

Demand for physical goods soared in the early days of the Covid 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.

The environment has changed, though: 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.

Since June 2023, consumers have seen prices deflate for goods like home furniture for a living room, kitchen or dining room (prices are down by 4.9%), appliances (-3.6%), toys (-6%), dishes and flatware (-10.2%) and outdoor equipment like grills and garden supplies (-4.3%).

Car buyers have also seen prices for new vehicles fall about 1% and for used vehicles by roughly 10% over the past year. Vehicle prices were among the first to surge when the economy reopened broadly early in 2021, amid a shortage of semiconductor chips essential for manufacturing.

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

Outside of supply-demand dynamics, the U.S. dollar’s strength relative to other global currencies has also…