Inflation has investors on edge. But some sectors have deflated

Investors are jittery after a round of higher-than-expected inflation data on Wednesday, suggesting the fight to rein in consumer prices could take longer than expected.

But certain categories of goods and services have deflated, that is to say their prices have actually fallen.

Consumers mainly saw lower prices for physical goods, such as cars, furniture and appliances, but they also fell for some food and energy-related products.

“We still see some pockets of deflation,” said Sarah House, senior economist at Wells Fargo Economics.

That downward pressure has eased in recent months, however, as some supply and demand dynamics that were upended by the Covid pandemic have normalized, House said.

Deflation is “not quite the monolith that maybe it was last year,” she said.

Demand for these products skyrocketed at the start of the pandemic as consumers were confined to their homes and unable to spend on things like travel or concerts.

The health crisis has also strained global supply chains, meaning volume has been unable to keep up with demand for these products.

Such supply and demand dynamics have driven up prices. But now they are falling back to earth.

For example, prices for home furnishings have been falling steadily for about a year, House said.

Furthermore, prices of laundry equipment are down 14.6% compared to the previous year’s period, according to the Consumer Price Index for March. Among all appliances, prices also fell 6.3% during this period.

At the same time, prices fell for furniture and bedding (down 3.8%), crockery and cutlery (-3.9%), toys (-8.2%), equipment and supplies. outdoors (-4.9%) and sporting goods (-2.2%).

Consumers’ initial enthusiasm for renovating their homes and upgrading their home offices during the pandemic has waned, driving down prices.

“There are only so many cushions you need,” House said.

The U.S. dollar has also been historically strong against other global currencies, a dynamic that helps keep goods prices in check, economists say. This makes it less expensive for American companies to import goods from abroad, since the dollar can buy more.

The nominal broad U.S. dollar index is higher than at any pre-pandemic time dating back to at least 2006, according to Federal Reserve data. The index measures the appreciation of the dollar against the currencies of the country’s main trading partners, such as the euro, the Canadian dollar and the Japanese yen.

Prices of new and used vehicles also decreased slightly over the past year, by 0.1% and 2.2%, respectively. They were among the first categories to see a sharp rise during the widespread reopening of the economy in early 2021, amid a shortage of semiconductor chips essential to the manufacturing industry.

Meanwhile, travel costs for plane tickets, hotels and rental cars have also decreased by 7.1%, 2.4% and 8.8% respectively since March 2023.

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Airlines have increased the volume of seats available to travelers by flying larger planes on domestic routes, which has helped lower prices, for example, according to Hayley Berg, chief economist at travel site Hopper .

The price of jet fuel, a key production cost for airlines, is also down from last year, Berg said. Fuel oil is down 3.7% annually, according to CPI data, even as rising oil prices have pushed up those of other energy commodities like gasoline in recent months.

Generally speaking, food prices “are at a standstill,” said Mark Zandi, chief economist at Moody’s Analytics.

Certain food categories such as ham, cheese and coffee have declined. Consumers have notably seen apple prices fall by 10.1% over the past year amid booming supply.

Elsewhere, some deflationary dynamics might only occur on paper.

For example, in CPI data, the Bureau of Labor Statistics monitors quality improvement over time. Electronic devices such as televisions, cell phones and computers are continually improving, which means consumers generally get more for the same amount of money.

This is reflected in lower prices in the CPI data.