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Economists said these declines were largely among physical goods rather than services.
Demand for goods surged early in the COVID-19 pandemic, as consumers were confined to their homes. The health crisis has also disrupted global supply chains for these goods. These dynamics have led to higher prices. And now they are falling back to earth.
“I've seen some [price] “Some of the groups most affected have been affected by the shift in consumer demand, as well as being severely impacted by some of the supply chain issues we have seen over the course of the pandemic,” said Sarah House, chief economist at Harvard University. Wells Fargo Economics.
For example, average prices in these categories, among others, have decreased since December 2022: toys (4.5%), college textbooks (4.9%), televisions (10.3%), men's suits, sports coats, and outerwear (6%). Sporting goods (2.5%), furniture and furnishings (4.3%), and computer software and accessories (9.9%), according to the Consumer Price Index.
“We bought a lot of goods because we couldn't get out and travel and go to ballgames” early in the pandemic, said Mark Zandi, chief economist at Moody's Analytics. “There has been a shift from commodities to things we couldn't do when we were closed.”
Prices of used cars and trucks also fell by 1.3%, according to Consumer Price Index data.
Used and new car prices were among the first to rise when the US economy broadly reopened in early 2021, amid a shortage of semiconductor chips essential for manufacturing.
However, Andrew Hunter, deputy chief US economist at Capital Economics, said used car price levels are still more than 30% higher than before the pandemic, meaning there is likely still plenty of room for a reversal.
Broadly, the historically strong US dollar compared to other global currencies has helped keep commodity prices in check, Zandi said. This makes it cheaper for American companies to import goods from abroad, as the dollar can buy more.
The broad nominal US dollar index is higher than it was at any pre-pandemic point dating back to at least 2006, according to the US Federal Reserve. Data As of early January. The index measures the appreciation of the dollar compared to the currencies of the United States' major trading partners, such as the euro, Canadian dollar, British pound, Mexican peso, and Japanese yen.
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Economists said lower energy prices also put downward pressure on commodity prices, due to lower transportation costs and energy-intensive manufacturing.
However, Zandi said attacks by Houthi militias on commercial ships in the Red Sea – a major trade route – are causing shipping costs to rise, which could reverse the downturn for some goods.
Low energy prices are also putting downward pressure on getting food to store shelves.
For example, the prices of eggs and lettuce decreased significantly After rising in 2022. Among the reasons for those initial shocks: the historic outbreak of avian influenza in the United States, which is highly deadly among birds such as laying hens, and an insect-borne virus that spread through the Salinas Valley farming region. In California, which accounts for about half of US lettuce production.
Elsewhere, some deflationary dynamics only occur on paper.
For example, the US Bureau of Labor Statistics, which compiles the Consumer Price Index report, Regulations To improve quality over time. Electronic devices such as televisions, cell phones, and computers are constantly improving. Consumers get more for roughly the same amount of money, which shows up as lower prices in CPI data.
Health insurance, which falls into the “services” side of the American economy, is similar.
The BLS does not evaluate health insurance inflation based on consumer premiums. It does this indirectly by measuring insurance companies' profits. This is because the quality of insurance varies greatly from person to person. One person's premiums may buy high-value insurance benefits, while another person buys meager coverage.
Those differences are in quality Makes it difficult To accurately measure changes in health insurance prices.
The 27.1% decline in health insurance prices last year reflects the decline in insurance company profits in 2021 compared to 2020.
These types of quality adjustments mean that consumers don't necessarily see lower prices in the store, but only on paper.
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