In October 2023, the US economy experienced a decline in producer prices, with the producer price index dropping 0.5% compared to the previous month [48f880c5]. This decrease was the largest since April 2020. On a year-over-year basis, producer prices rose 1.3% from October 2021, down from 2.2% in September [48f880c5]. Additionally, core consumer prices, excluding food and energy costs, remained unchanged from September to October and increased by 2.4% compared to the previous year [48f880c5].
The decline in prices was mainly observed in the goods sector, which makes up about a quarter of the consumer price index [48f880c5]. Supply chain disruptions, which had been a major factor contributing to inflationary pressures, were mostly resolved [48f880c5]. Furthermore, energy costs decreased, contributing to the overall deflationary trend [48f880c5]. Notably, the wholesale price of goods fell 1.4% in October, driven by a significant drop of 15.3% in gasoline prices [48f880c5].
Despite the decline in prices, the US economy and job market have shown resilience, raising hopes for a soft landing in terms of inflation and economic growth [48f880c5]. This suggests that the economy is able to withstand the impact of falling prices and maintain stability.
It is worth mentioning that retailers rarely cut prices, and instead, consumers often benefit from quality improvements in products like electronics [48f880c5]. This indicates that while prices may be falling in certain sectors, consumers can still enjoy enhanced product offerings without compromising on quality.
In December 2023, prices continued to decline for physical goods, groceries, and energy, according to the consumer price index [95284ded]. The decline in prices is attributed to normalized supply and demand and a stronger U.S. dollar, making it cheaper to import goods [95284ded]. The pullbacks in prices have been mostly in physical goods rather than services [95284ded]. Demand for goods soared during the Covid-19 pandemic, but now prices are falling back to normal [95284ded]. Categories such as toys, college textbooks, televisions, men's suits, sporting goods, furniture, computer software, and accessories have seen average price declines [95284ded]. Used car and truck prices have also fallen [95284ded]. The strong U.S. dollar and falling energy prices have contributed to the decline in goods prices [95284ded]. However, some deflationary dynamics are only happening on paper due to quality improvements over time. Health insurance prices have declined on paper due to smaller insurer profits in 2021 compared to 2020 [95284ded]. Overall, deflation is occurring in certain categories of goods, driven by various factors such as supply and demand, currency exchange rates, and energy prices [95284ded].
In December 2023, U.S. import prices remained flat, while export prices decreased by 0.9% [ac8afed6]. This decline in export prices is the first monthly decline since June 2023 [ac8afed6]. The drop in prices was attributed to lower prices for both agricultural and non-agricultural exports [ac8afed6]. Import fuel prices decreased by 0.3% in December, while non-fuel prices remained unchanged [ac8afed6].
Increased import costs are keeping prices high in various industries in the US [99d514be]. The US is the largest goods importer in the world, bringing in $3.2 trillion in 2022 [99d514be]. Import costs rose dramatically in 2021 and 2022 due to shipping constraints, world events, and other supply chain interruptions and cost pressures [99d514be]. While import costs have fallen most months, they remain nearly 12% above what they were in 2020 [99d514be]. Import costs related to crops, oil, and metals have had the highest increases, with costs for each industry remaining at least 20% above 2020 [99d514be]. The ban on Russian oil imports affected costs in the US. Gasoline prices surged 60% for consumers year-over-year in June 2022. Primary metal manufacturing and crop production have also experienced significant import cost increases. Aluminum prices went up due to high energy costs and production cuts in Europe. U.S. agricultural imports have expanded, and turmoil with Russia contributed to cost increases in agricultural trade [99d514be]. If import prices continue to rise, overall inflation would likely follow, pushing prices even higher for American consumers [99d514be].
Inflation around the world increased dramatically with the reopening of economies following COVID-19. After reaching a peak of 11 percent in the second quarter of 2021, world trade prices dropped by more than five percentage points by the middle of 2023. U.S. import prices followed a similar pattern, albeit with a lower peak and a deeper trough [c8906e24]. From 2021:Q1 to 2022:Q2, almost all of the growth in U.S. import prices can be attributed to global factors, that is, trends present in most countries. At the end of 2022, U.S. import price inflation started to be driven by U.S. demand factors. In 2023, foreign suppliers to the U.S. market caught up with demand and account for the decline in import price inflation, with a significant role played by China [c8906e24].
In April 2024, deflation has largely occurred for physical goods such as home furniture, appliances, and cars over the past year. Some categories of food and travel costs have also deflated [f595133b]. Demand for physical goods soared in the early days of the Covid-19 pandemic, driving up prices. However, prices have fallen back to earth as the initial pandemic-era craze has diminished and supply-chain issues have unwound [f595133b]. Prices for home goods such as furniture and bedding have decreased, as well as prices for home appliances, dishes and flatware, toys, outdoor equipment and supplies, and sporting goods [f595133b]. The strength of the U.S. dollar relative to other global currencies has helped rein in prices for goods. Prices for new and used vehicles have also deflated, as well as grocery prices for items such as ham, frozen fish, eggs, milk, cheese, citrus fruits, coffee, and potatoes [f595133b]. Travel costs, including airfare, hotel, and rental car prices, have declined [f595133b]. Some deflationary dynamics may happen only on paper, such as quality improvements in electronics [f595133b]. Overall, American consumers are getting better at shopping and finding price breaks [f595133b]. Inflation on the services side of the economy has been more buoyant than that of goods, but travel costs have declined [f595133b]. Airlines have increased seat availability and there has been a correction in the price of jet fuel [f595133b]. However, some deflationary dynamics may happen only on paper, such as quality improvements in electronics [f595133b].
Overall, the decline in prices in October 2023 has had a significant impact on the US economy, particularly in the goods sector. However, the resilience of the economy and the ability of consumers to benefit from quality improvements in products demonstrate the potential for a positive outcome in terms of inflation and economic growth [48f880c5]. The subsequent decline in prices in December 2023 further reinforces the deflationary trend, driven by factors such as supply and demand, currency exchange rates, and energy prices [95284ded]. The decrease in export prices adds to the deflationary pressure, indicating a broader impact on the US economy [ac8afed6]. The high import costs in various industries continue to keep prices high, posing challenges for American consumers [99d514be]. The deflationary breakdown in April 2024 highlights the continued deflation in physical goods and some categories of food and travel costs, providing further evidence of the impact of falling prices on the US economy [f595133b].