Here is the deflation breakdown for July 2024 – in one chart

Inflation fell below 3% in July 2024, the first time it has fallen below that level in more than three years.

While many parts of the U.S. economy are in decline — meaning their prices are still rising, albeit at a slower pace — some are downright deflating. That means their prices have actually dropped.

Deflation has largely occurred for physical goods, but according to the consumer price index.

These are “micro-pockets” of deflation, says Joe Seydl, senior market economist at JP Morgan Private Bank.

But the deflationary dynamics are less widespread than earlier in the pandemic, when the disappearance of distorted supply-and-demand dynamics made them even more apparent, economists said.

“Overall, deflation is becoming less broad-based across items,” said Mark Zandi, chief economist at Moody’s.

Consumers should not expect a broad and sustained price decline across the U.S. economy. That usually only happens when there is a recession, economists say.

According to CPI data, ‘core commodities’ – commodity prices excluding those related to food and energy – have fallen by around 2% on average since July 2023.

They fell by 0.3% during the month, from June to July 2024.

Demand for physical goods soared in the early days of the Covid-19 pandemic as consumers were confined to their homes and unable to spend money on things like concerts, travel or dining out.

The health crisis has also shrunk global supply chains, preventing goods from hitting shelves as quickly as consumers wanted.

Such supply-and-demand dynamics drove up prices.

However, the environment has changed.

So far, the initial pandemic-era craze of consumers sprucing up their homes and modernizing their home offices has waned, sending prices down. Supply chain problems have also been largely resolved, economists say.

According to CPI data, prices for furniture and bedding have fallen by more than 5% since July 2023. Prices have also fallen over the past year for tableware and cutlery (about 8%), laundry equipment (-6%), non-electric cookware (-10%), toys (-3%) and tools and hardware (-1%) , according to the CPI.

Clothing prices have also fallen, for example for men’s and women’s outerwear (-12% and -4% respectively) and baby and toddler clothing (-4%).

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Prices for new and used vehicles have fallen by 1% and 11% respectively since July 2023. Rental prices for cars and trucks have fallen by about 6%.

Auto prices were among the first to rise as the economy largely reopened in early 2021 amid a shortage of semiconductor chips essential for manufacturing.

“Vehicle prices remain under pressure from improved inventories and higher borrowing costs,” Sarah House and Aubrey George, economists at Wells Fargo Economics, wrote in a note in July.

Higher borrowing costs are the result of the Federal Reserve raising interest rates to curb high inflation. Economists expect central bank officials to start cutting interest rates at their next policy meeting in September.

In addition to supply-demand dynamics, the strength of the U.S. dollar against other global currencies has also helped keep prices for goods in check, economists said. This makes it cheaper for American companies to import items from abroad because the dollar can buy more.

Long-term forces such as globalization have also helped, increasing imports of cheaper goods from China, economists said.

According to CPI data, airfares have fallen by about 3% over the past year.

The decline is partly due to a decline in jet fuel prices, said Stephen Brown, deputy chief North America economist at Capital Economics. Average jet fuel prices are downstairs according to the International Air Transport Association, about 17% compared to last year.

Airlines have also increased the number of seats available on domestic routes, largely by flying larger planes, said Hayley Berg, chief economist at travel site Hopper, wrote in April.

This summer, “we have repeatedly seen airlines cutting prices on many routes in the coming months,” wrote Gunnar Olson, flight deal analyst at Thrifty Traveler. “It has led us to declare that this is the best summer ever for travel.”

According to CPI data, prices for food items such as cereals, rice, bread, ham, fish, cheese, ice cream, potatoes, apples, bananas, margarine and snacks have fallen.

Each grocery item has its own supply-and-demand dynamics that can affect its price, economists said. For example, apple prices have fallen by almost 15% in the past year as a result of: supply abundance.

Additionally, there have been more price promotions at grocery stores lately, with a few “major retailers recently announcing price cuts that are likely to put pressure on competitors’ prices,” Wells Fargo’s House and George wrote.

The deflationary dynamics of other categories may only play out on paper.

For example, in the CPI data, the Bureau of Labor Statistics checks for quality improvements over time. Electronics such as televisions, cell phones and computers are constantly improving, meaning consumers generally get more for the same money.

This is evident from a price drop in the CPI data.