What Prices Are Actually Deflating?

Updated March 12, 2024, to reflect the most recent consumer price index data.

Price increases are slowing down since the annual rate of inflation peaked in June 2022, at 8.9%. In fact, data released in March from the Department of Labor shows the annual inflation rate is 3.2%. That’s the 12-month change in the Consumer Price Index — a proxy for inflation.

While it may not feel like costs are coming down when you check out at the grocery store, the CPI shows prices are actually decreasing for some goods and services.

What is deflation?

While inflation measures the rate of price increases, deflation is the opposite — it measures the rate of price decreases.

Falling prices sounds appealing, but widespread deflation can have a downside because of the way it can affect consumer behavior. When consumers expect prices to fall more, they might hold off on making purchases, hoping to get a better deal later.

Decreased demand for goods and services by consumers can lead to a “deflationary loop,” according to the Federal Reserve Bank of St. Louis. In this kind of loop, as consumers spend less, companies make less money and might respond by cutting jobs. The loss of income from unemployment means consumers have less money to spend, and on the loop goes.

Deflation is definitely not the norm among the goods and services assessed in the CPI. There are outliers, though. Most of the price categories that have seen deflation relative to a year ago are in goods, not services.

Another term, disinflation, refers to slowing inflation. That means prices are still increasing but at a slower rate.

What prices have deflated since last year?

The most recent CPI report shows year-over-year price index drops in 119 goods and services categories (among roughly 324 measured). Here are some of the biggest drops among foods, other goods and services.

Foods:

• Eggs: -17%

• Apples: -9.7%

• Lettuce: -6.1%

• Ham, excluding canned: -5.1%

• Frozen fish and seafood: -4.6%

Other goods:

• Laundry equipment: -11.3%

• Other motor fuels: -11.2%

• Smartphones: -10.5%

• Telephone hardware, calculators and other consumer information items: -8.3%

• Other linens: -8.3%

» MORE: Are gas prices going down?

Services:

• Health insurance: -19.7%*

• Car and truck rental: -10%

• Utility (piped) gas service: -8.8%

• Other intercity transportation: -6.2

• Airline fares: -6.1%

*Note: The health insurance index measures the business cost of services provided by the health insurer. In other words, it’s the amount customers are paying into their policy that’s not distributed — that’s the health care insurers’ earnings. The amount consumers pay for medical care is different.

Is deflation coming in the U.S.?

The U.S. economy is not experiencing widespread deflation. Instead, since 2022, U.S. monetary policy has focused on slowing inflation through rate hikes.

Consumer spending is one factor — though not the only one — driving inflation. Consumer spending remains high, though it is slowing, according to the latest personal consumption expenditures (PCE) index data released on Dec. 22 by the Bureau of Economic Analysis.

If consumer spending continues to increase, it could push the Federal Reserve to raise the federal funds rate further as a way to throttle demand for goods and services and bring prices down. The Fed watches inflation data closely to determine whether to hike or cut interest rates, which impacts the cost of borrowing for things like cars and homes.

On the other hand, if consumer spending declines, it could resurrect concerns about a recession, which have otherwise largely dissipated.

What do Americans predict for inflation?