A chart showing price declines in January 2024 | Private Equity Weekly

Inflation has fallen sharply from its pandemic-era peak. In fact, some categories have fallen into outright deflation, meaning consumers are seeing prices fall rather than rise.

Economists say deflation is occurring primarily in physical goods rather than services. The former are tangible objects, while the latter are primarily things we can experience, such as haircuts and visits to the vet.

In the early days of the Covid-19 pandemic, demand for goods surged as consumers were confined to their homes and unable to spend money on travel or events such as concerts. The health crisis has also disrupted global supply chains, meaning volumes cannot keep up with demand for these goods. This supply and demand dynamic drives up prices.

Now, they are returning to Earth.

So-called “core” commodity inflation, which excludes potentially volatile food and energy prices, was minus 0.3% in January 2024, the latest data available consumer price index Data released by the U.S. Bureau of Labor Statistics on Tuesday.

“Supply chains are getting back to normal,” said Jay Bryson, chief economist at Wells Fargo Economics. “On the demand side, there’s been some shift from spending on goods to spending on services.”

“We’re kind of back to the pre-COVID era,” he added.

The average price of these physical goods has fallen from January 2023 to January 2024: Furniture and bedding (prices fell 2.9%); Major household appliances (-7.3%); Men’s suits, sport coats and outerwear (- 5.3%); Girls’ clothing (-9%); Video and audio products (-5.8%); Sporting goods (-1.1%); Toys (-4.2%); According to CPI data, college textbooks (-5.7%).

Prices for used cars and trucks also fell 3.5% over the past year, according to CPI data.

Used and new car prices top the list That number is set to soar as the U.S. economy fully reopens in early 2021 due to a shortage of semiconductor chips necessary for manufacturing.

Zandi said that in addition to normalizing supply and demand dynamics, the U.S. dollar’s historical strength relative to other global currencies has also helped keep commodity prices in check.This makes It is cheaper for U.S. companies to import goods from overseas because dollars can buy more goods.

The Fed said the broad dollar index was higher than any pre-pandemic level since at least 2006 data. The index measures the dollar’s appreciation against the currencies of major U.S. trading partners such as the euro, Canadian dollar, British pound, Mexican peso and Japanese yen.

Falling energy prices are also putting downward pressure on commodity prices, economists said, as transportation and energy-intensive manufacturing costs fall. Overall energy costs fell 4.6% last year.

Economists worry, however, that Houthi militia attacks on merchant ships in the Red Sea, a major trade route, could lead to shipping disruptions and a reversal of deflation in some commodities.

Lower energy prices also put downward pressure on getting food to shelves.

In groceries, eggs, lettuce prices plummet Following a surge in 2022, from January 2023 to January 2024 (increases of 28.6% and 11.7% respectively). Among the reasons for these initial shocks: a historic outbreak of avian influenza in the United States, which is extremely deadly to chickens and other birds, and an arbovirus that is rampant in California’s Salinas Valley growing region, which produces about 10% of U.S. lettuce. half of the output.

However, egg prices have started rising again in recent months due to a resurgence of bird flu.

Grocery prices overall rose 1.2% over the past year, according to Consumer Price Index (CPI) data.

The average American allocates a large portion of their budget (about two-thirds) to services rather than goods.

The service sector of the U.S. economy has emerged Deflation – where prices are still rising, but at a slower pace than before – but not as deflationary as in core commodities. According to CPI data, services inflation (excluding energy) has still increased by 5.4% since January 2023.

“recent(employment cost index) Wage growth will fall below 4% annualized in the fourth quarter of 2023 (the first time since the second quarter of 2021), reflecting a rebalancing of the workforce, according to a recent outlook written by J.P. Morgan Global Investors A better balance between demand and supply. Policy group.

However, some service categories have shrunk.

For example, airline fares fell 6.4% last year. This is due to factors such as lower aviation fuel costs for airlines and increased seat capacity (the supply of available seats for passengers due to increased flight volume) on domestic and international flights, according to to Hopper.

For example, in the CPI data, the U.S. Bureau of Labor Statistics control Quality continues to improve over time. Electronic products such as televisions, cell phones, and computers continue to get better. Consumers are getting more for roughly the same money, which shows up in CPI data as falling prices.

A similar situation exists for health insurance, which is part of the service sector of the U.S. economy.

The Bureau of Labor Statistics does not assess health insurance inflation based on consumer premiums. It does this indirectly by measuring the profits of insurance companies. This is because the quality of insurance varies from person to person. One person’s premium may purchase high-value insurance benefits, while another’s premium may purchase meager coverage.

those differences in quality make it difficult Accurately measure changes in health insurance prices.

Health insurance prices fell 23.3% last year. The decline reflects lower profits for insurers in 2021 relative to 2020.

These quality adjustments mean consumers won’t necessarily see price drops in stores, just on paper.