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Consumers have been hearing a lot about inflation in the US economy since early 2021. And rightly so: At the height of the pandemic era, consumer prices were rising faster than ever before. 40 years.
But the dynamic seems to have changed.
Inflation has gradually decreased, which means prices are still rising but at a slower pace – also known as disinflation. And some prices actually deflated During the past year, according to Consumer price index.
Deflation is the opposite of inflation: it means that consumers see prices fall in certain categories.
Why do some prices drop?
Economists say this deflationary dynamic occurs largely in the “goods” side of the U.S. economy — the tangible things Americans buy. Goods make up nearly a quarter of the consumer price index.
There are several reasons for this.
For one, a A stronger US dollar makes imported goods cheaper. Some of those savings — on items like clothing and furniture — are passed on to consumers, said Mark Zandi, chief economist at Moody’s Analytics.
This dynamic also represents somewhat of a return to the pre-pandemic norm, Zandi said.
He said that deflation in commodity prices was typical before the pandemic. But the health crisis has disrupted global supply chains, causing shortages that have sent prices soaring. Energy costs rose when Russia invaded Ukraine, leading to higher transportation and other distribution costs.
Supply chain disruptions are now largely in the rearview mirror, he said. Energy costs decreased.
In the long run, consumers also see savings overall as manufacturers shift production of goods to lower-cost areas, Zandi said.
Some of the declines are due in part to measurement quirks.
For example, the 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 poor coverage.
Those differences are in quality Makes it difficult To accurately measure changes in health insurance prices.
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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