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Deflation in May 2024: A Shift in Consumer Prices
Amid easing inflationary pressures, the U.S. economy has witnessed "micro pockets" of deflation in May 2024, as reported by Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. Deflation, which indicates a decline in consumer prices, has been observed in specific sectors, primarily affecting physical goods and some non-goods items.
The dynamics of the Covid-19 pandemic led to an extreme disconnect between supply and demand, causing prices to surge in these pockets. However, as these conditions normalize, prices are now returning to more normal levels. Despite this, economists do not anticipate deflation across the broader U.S. economy.
Physical Goods and Deflation
Prices for physical goods, such as cars, furniture, and appliances, have been the most affected by deflation. The consumer price index shows that prices for furniture and bedding have dropped by 3.7% since May 2023, while those for laundry equipment, dishes and flatware, and outdoor equipment and supplies have decreased by 8.8%, 8.1%, and 5%, respectively. New car prices have fallen by 1.4% over the past year, and used car and truck prices have decreased by 9.3%.
The early days of the pandemic saw a surge in demand for physical goods as consumers were confined to their homes and unable to spend on experiences like concerts, travel, or dining out. This led to supply-and-demand imbalances that drove up prices. However, as the initial pandemic-era craze for home renovations and upgrades has subsided, and supply-chain issues have largely resolved, prices for physical goods have fallen.
Excluding food and energy commodities, overall physical goods prices have deflated in all but one month since May 2023, according to Bureau of Labor Statistics data. Prices for goods are down 1.7% over the past year. Additionally, the strength of the U.S. dollar relative to other global currencies has helped keep a lid on prices for imported goods.
Non-Goods Items and Deflation
Deflation has also affected some non-goods items, such as groceries, travel, and electronics. For example, grocery prices have decreased for items like ham, rice, fresh fish and seafood, milk, potatoes, coffee, margarine, and cheese. Apple prices have fallen by 13.2% in the past year due to increased supply.
Grocery prices are influenced by unique supply-and-demand dynamics. For instance, egg prices surged in 2022 due to a historic and deadly outbreak of bird flu and have since declined. Travelers have also experienced deflation for airline fares (-5.9%), hotels (-1.7%), and car rentals (-8.8%). Olivia Cross, a North America economist at Capital Economics, noted that consumers are becoming more price-sensitive, which could force retailers to offer more competitive prices to attract customers.
Original Article: https://www.cnbc.com/2024/06/13/deflation-cpi-may-2024-in-one-chart.html
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