As inflation continues to throttle back across the broad U.S. economy, some consumer categories have sunk into outright deflation.
In other words: Americans are seeing prices decline for certain items.
Those pullbacks have largely been among physical goods rather than services, economists said.
Demand for goods soared early in the Covid-19 pandemic, as consumers were confined to their homes. The health crisis also snarled global supply chains for those goods. These dynamics drove up prices. Now, they’re falling back to earth.
“You have seen some [price] give-back in some categories that were most affected by the shift in consumer demand, as well as being affected most severely by some of the supply-chain issues we saw over the course of the pandemic,” according to Sarah House, senior economist at Wells Fargo Economics.
A shift away from spending on goods
For example, average prices have declined in these categories, among others, since December 2022: toys (by 4.5%), college textbooks (4.9%), televisions (10.3%), men’s suits, sport coats, and outerwear (6%), sporting goods (2.5%), furniture and bedding (4.3%), and computer software and accessories (9.9%), according to the consumer price index.
“We bought a lot of goods because we couldn’t go out, travel, go to ballgames” early in the pandemic, said Mark Zandi, chief economist at Moody’s Analytics. “There has been a shift from goods to things we couldn’t do when we were shut in.”
Prices for used cars and trucks have also fallen, by 1.3%, according to CPI data.
Used and new vehicle prices were among the first to surge when the U.S. economy reopened broadly early in 2021, amid a shortage of semiconductor chips essential for manufacturing.
However, price levels on used cars remain more than 30% higher than they were pre-pandemic, meaning there’s likely still ample room for a reversal, said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
There are other deflationary dynamics
Broadly, a historically strong U.S. dollar relative to other global currencies has also helped rein in goods prices, Zandi said. This makes it cheaper 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 U.S. Federal Reserve data as of early January. The index gauges the dollar’s appreciation relative to currencies of the U.S.′ main trading partners such as the euro, Canadian dollar, British pound, Mexican peso and Japanese yen.