One chart displays the deflation breakdown for June 2024.

• Deflation measures how quickly prices are declining for consumer goods and services.
• Since June 2023, the consumer price index has shown that prices for various items, including physical goods, airfare, gasoline, and some groceries, have decreased.
• After being disrupted by the Covid-19 pandemic, supply and demand dynamics have stabilized.

Since peaking two years ago, inflation has decreased significantly and some prices are even deflating for consumers in the U.S. economy.

Gauging the rate of price decline for a consumer product or service is known as deflation. This is the inverse of inflation, which measures the rate of price increase.

Economists suggest that the deflation experienced over the past year is mainly due to physical goods, as supply and demand dynamics that were disrupted by the pandemic gradually return to normal.

The consumer price index, a key inflation measure, shows that the average decline in "core" goods prices (excluding food and energy) has been 1.8% since June 2023.

According to Olivia Cross, a North America economist at Capital Economics, we have observed core-goods deflation in several categories.

"She remarked, "It's quite extensive, and I anticipate it lasting for a brief period.""

Prices of gasoline and various grocery items have decreased.

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

Why prices are deflating for goods

The demand for physical goods increased during the initial stages of the Covid 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 demand for home renovations and upgrades has decreased due to changes in the environment, while supply chain issues have been resolved, according to economists.

Prices for various goods have decreased since June 2023. Home furniture prices have fallen by 4.9%, while appliances have seen a 3.6% decrease. Toys have experienced a 6% price drop, and dishes and flatware have seen a 10.2% decrease. Additionally, outdoor equipment like grills and garden supplies have also experienced a 4.3% price decrease.

Here's the inflation breakdown for June 2024 — in one chart.

The prices of new and used vehicles have decreased by approximately 1% and 10% respectively over the past year. Despite this, vehicle prices were among the first to increase when the economy reopened in early 2021 due to a shortage of semiconductor chips needed for manufacturing.

"Improved inventory and higher financing costs due to the U.S. Federal Reserve raising interest rates to tame inflation continue to put pressure on vehicle prices, according to economists Sarah House and Aubrey George at Wells Fargo Economics," the note stated.

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.

Globalization has contributed to lower-priced goods from China, but a rise in tariffs and reduced free trade could increase prices significantly, Cross stated.

Why there's been deflation for food, travel, electronics

Prices have also declined for items including food, travel and electronics.

According to CPI data, the cost of items like ham, rice, potatoes, coffee, milk, and cheese has decreased.

The supply-and-demand dynamics of each grocery item can affect pricing, economists noted. For instance, apple prices have decreased by 12% in the past year due to an excess supply. On the other hand, egg prices increased in 2022 mainly because of a deadly bird flu outbreak.

The decline in gasoline prices by 2.5% in the past year was due to "sluggish gasoline demand, abundant supply, and decreasing oil costs," as stated by AAA.

Since June 2023, airline fares have decreased by 5.1% annually, hotel rates by 2.8%, and car rental rates by 6.3%.

Economists stated that retailers have become more cautious due to consumers' increased price sensitivity.

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

Elsewhere, some 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.