After grappling with high inflation for more than two years, American consumers are now seeing an economic trend that many might only dimly remember: falling prices — but only on certain types of products.
Deflation is affecting so-called durable goods, which are expected to last more than three years, Wall Street Journal reporter David Harrison told CBS News. As Harrison noted in his report, durable goods have fallen year-over-year for five consecutive years. months and fell 2. 6% in October from its peak in September 2022.
These come with products like used cars, furniture and appliances, the costs of which have risen dramatically during the pandemic. Used cars specifically have been a factor for American households, with used car costs rising more than 50% in the first quarter. Two years of pandemic.
These recent pockets of deflation could help push the overall U.S. inflation rate closer to 2%, which is the level the Federal Reserve is targeting. The central bank has raised its benchmark rate 11 times since early 2022, part of its plan to make it more expensive for consumers and businesses to buy homes, autos and other items that are purchased with loans or credit.
As a result, inflation is slowing, reaching the point where most economists now expect the Federal Reserve to refrain from any further rate increases. The Federal Reserve’s next interest rate meeting will be held on Dec. 13.
“What does [durable goods deflation] mean for the economy? Well, it’s a good sign,” Harrison said. “The fact that we have these prices falling will offset the ongoing increases in services, and the idea is that will get us back to the 2% sweet spot.”
That said, deflation is unlikely to become widespread. And if that’s the case, it’s probably not a smart sign for the economy, Harrison added. Deflation is a decrease in costs over time, often caused by a depletion of demand.
“This means that there is little demand for goods and services and this regularly causes a recession,” he added.
Widespread deflation can be like kryptonite for the economy because consumers typically will then hold off on purchases, banking that goods or services will simply get cheaper if they wait. Such a deflationary spiral hit Japan in the 1990s, leading to a decade of economic stagnation called Japan’s “lost decade.”
In the U. S. , however, inflation remains above the Federal Reserve’s 2% target. Prices were most likely up 3. 2% in November from a year earlier, according to economists surveyed via FactSet. Inflation data for November will be released on December 12.
Although inflation is slowing rapidly, many Americans remain pessimistic about the economy. About 6 in 10 employees say their revenue hasn’t reached last year’s increase in value.
“Economists look at trends,” Harrison noted, but consumers “tend to look at absolute prices, and when you go to the grocery store you still see groceries are 20% more expensive than before the pandemic.”
Quotes were delayed by at least 15 minutes.
Market knowledge through ICE Data Services. ICE Boundaries. Developed and implemented through FactSet. News through The Associated Press. Legal Statement.