From CNBC:

Inflation in the US has decreased significantly, with some goods now experiencing outright deflation. This shift comes after a surge in demand for goods during the Covid-19 pandemic and global supply chain disruptions. Factors driving the decrease include a stronger US dollar and falling energy prices, with deflation occurring primarily for physical goods rather than services.

The average American spends most of their budget on services, leading to less pronounced deflation in this sector compared to goods. The services sector remains up 5.4% since January 2023, with disinflation rather than deflation. Labor costs play a significant role in this discrepancy, with wage growth for workers in the services industry serving as a contributing factor. However, certain services categories have also experienced deflation over the past year, such as airline fares.

Some deflationary dynamics are only apparent on paper due to quality improvements over time. The Bureau of Labor Statistics controls for quality improvements in products like electronics, resulting in lower prices in CPI data although quality has improved. The same is true for health insurance, where quality differences make it difficult to assess changes in prices accurately. For health insurance, the decline reflects smaller insurer profits in 2021 compared to 2020.

Overall, goods inflation, excluding food and energy prices, was negative 0.3% in January 2024 compared to a year earlier, reflecting a significant shift in the economic landscape.

Prices have deflated across a wide range of goods, such as furniture, major household appliances, clothing, and automotive products. Falling energy prices have also put downward pressure on goods pricing.

While disinflation has been more apparent in services, certain categories, such as airline fares, have experienced deflation. These dynamics are driven by factors such as labor costs and quality adjustments, rather than traditional supply-and-demand dynamics.

These changes have occurred amidst a fluctuating economic landscape shaped by the broader recovery from the Covid-19 pandemic as well as global geopolitical pressures.



Read more: Here’s where prices fell in January 2024, in one chart