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 impacting so-called durable goods, or products that are meant to last more than three years, Wall Street Journal reporter David Harrison told CBS News. As Harrison noted in his reporting, durable goods have dropped on a year-over-year basis for five straight months and dropped 2.6% in October from their September 2022 peak.
These come with products such as used cars, furniture, and appliances, the costs of which have risen dramatically during the pandemic. Used cars specifically have been a factor for U. S. households, with used car costs rising more than 50% in the first quarter. Two years into the pandemic.
This recent portfolio of deflation could bring the U. S. headline inflation rate closer to the bottom of the table. UU. al 2%, the Federal Reserve’s target point. The central bank has raised its benchmark rate 11 times since the start of 2022, as part of its plan to make it more expensive for consumers and businesses to buy homes, cars and other parts acquired with loans or credit.
As a result, inflation is easing, reaching the point where most economists are now predicting the Federal Reserve will hold off on additional rate hikes. The Fed’s next interest-rate meeting will be on December 13.
“What does [smart, long-lasting deflation] mean for the economy?Well, it’s a smart signal,” Harrison said. The fact that those costs are falling will offset the continued increases in services, and the concept is that this will get us back to the sweet spot of 2%. “
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, as consumers generally delay their purchases, thinking that goods or facilities will be less expensive 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 is still higher than the Fed’s 2% goal. Prices likely rose 3.2% in November from a year ago, according to economists polled by 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 income has been less than last year’s pay raise.
“Economists look at trends,” Harrison said, but consumers “tend to look at absolute prices, and when you go to the grocery store, you still see that food is 20% more expensive than it was 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.