One chart displays the deflation breakdown for July 2024.

• The inflation rate has throttled back significantly from its pandemic-era highs.
• In certain regions of the U.S. economy, prices have decreased, leading to deflation.
• The website offers prices for various categories, including physical goods such as cars and trucks, clothing, and furniture, as well as other categories like airline fares and some food items.

In July 2024, inflation fell below 3% for the first time in over three years.

Some areas of the U.S. economy have experienced deflation, meaning their prices have decreased.

Though deflation has mainly affected physical goods, it has also emerged in categories such as airline fares, gasoline, and various food items, as indicated by the consumer price index.

According to Joe Seydl, senior markets economist at J.P. Morgan Private Bank, there are "micro pockets" of deflation.

The deflationary dynamic is less widespread now than it was during the early pandemic, when the unwinding of distorted supply-and-demand dynamics made it more pronounced, economists said.

Mark Zandi, Moody's chief economist, stated that deflation for various items is becoming less widespread.

Generally, a broad and sustained fall in prices across the U.S. economy doesn't occur unless there's a recession, economists said.

Why goods prices have fallen

The average decline in "core" goods prices, excluding food and energy, has been approximately 2% since July 2023, as per CPI data.

They fell 0.3% during the month, from June to July 2024.

The demand for physical goods increased during the initial stages of the Covid-19 pandemic due to people being restricted to their homes and unable to spend money on activities like concerts, travel, or dining out.

The health crisis disrupted global supply chains, causing delays in the delivery of goods to consumers.

Such supply-and-demand dynamics drove up prices.

The environment has changed, however.

The demand for home renovations and upgrades has decreased during the pandemic, causing prices to drop. Additionally, supply chain disruptions have been resolved, according to economists.

Since July 2023, furniture and bedding prices have decreased by more than 5%, while prices for dishes and flatware have fallen by approximately 8%, laundry equipment by 6%, nonelectric cookware by 10%, toys by 3%, and tools and hardware by 1%, according to CPI data.

The cost of men's and women's outerwear has decreased by 12% and 4%, respectively, while infants and toddlers experienced a 4% reduction in prices.

In 2025, the Social Security cost-of-living adjustment may be 2.6%. The inflation breakdown for July 2024 is as follows. The U.S. construction boom is causing rents to decrease.

Since July 2023, the prices for new and used vehicles have decreased by 1% and 11%, respectively, while car and truck rental prices have fallen by approximately 6%.

The shortage of semiconductor chips led to a surge in car prices when the economy reopened in early 2021.

Economists at Wells Fargo Economics, Sarah House and Aubrey George, stated in a note last month that vehicle prices are still being affected by increased inventory and higher financing costs.

The Federal Reserve raising interest rates to control inflation has led to higher financing costs. Economists predict that central bank officials will begin reducing rates at their upcoming September policy meeting.

The U.S. dollar's strength relative to other global currencies has helped rein in prices for goods, making it less expensive for U.S. companies to import items from overseas, economists said.

Economists stated that long-term forces, including globalization, have contributed to the decline in prices by importing lower-cost goods from China.

Deflation for airfare, food and electronics

According to CPI data, there has been a 3% decrease in airline fares over the past year.

The decline in jet fuel prices is partly responsible for the drop in aviation, said Stephen Brown, deputy chief North America economist at Capital Economics. According to the International Air Transport Association, average aviation jet fuel prices have decreased by approximately 17% from the previous year.

In April, Hayley Berg, the lead economist at travel site Hopper, wrote that airlines have increased the number of seats on domestic routes by flying larger planes.

This summer, airlines have been cutting prices on many routes for upcoming travel, according to Gunnar Olson, a flight deal analyst at Thrifty Traveler. As a result, Olson declares this as the best summer ever for travel.

According to CPI data, the prices of various grocery items such as cereal, rice, bread, ham, fish, cheese, ice cream, potatoes, apples, bananas, margarine, and snacks have decreased.

Economists stated that each grocery item has its own supply-and-demand dynamics that can affect pricing. For instance, apple prices have decreased by almost 15% in the past year due to an excess supply.

Recently, major retailers have announced price cuts, which may lead to competitors lowering their prices, according to House and George of Wells Fargo.

Other categories' deflationary dynamics may be happening only on paper.

The Bureau of Labor Statistics manages the CPI data to account for quality improvements over time. Electronics, including televisions, cellphones, and computers, are constantly improving, resulting in consumers receiving more value for their money.

That shows up as a price decline in the CPI data.