Inflation cooled below 3% in July 2024, the first time it dropped beneath that level in more than three years. While many areas of the U.S. economy are disinflating — meaning their prices are still rising, though at a slower rate — some have been outright deflating. That means their prices have actually declined. Deflation has largely occurred for physical goods, though it has also appeared in categories such as airline fares, gasoline and various food items, according to the consumer price index. These are "micro pockets" of deflation, said Joe Seydl, senior markets economist at J.P. Morgan Private Bank.

But the deflationary dynamic is less widespread than it was earlier in the pandemic, when the unwinding of contorted supply-and-demand dynamics made it more pronounced, economists said. "Broadly speaking, deflation for various items is increasingly less broad-based," said Mark Zandi, chief economist at Moody's. Consumers shouldn't expect a broad and sustained fall in prices across the U.S. economy. That generally doesn't happen unless there's a recession, economists said.

Why goods prices have fallen

"Core" goods — commodity prices excluding those related to food and energy — have declined by about 2% since July 2023, on average, according to CPI data. They fell 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 couldn't spend on things such as concerts, travel or dining out. The health crisis also snarled global supply chains, meaning goods weren't hitting the shelves as quickly as consumers wanted them. Such supply-and-demand dynamics drove up prices.

The environment has changed, however. To that point, the initial pandemic-era craze of consumers fixing up their homes and upgrading their home offices has diminished, cooling prices. Supply-chain issues have also largely unwound, economists said. Furniture and bedding prices are down more than 5% since July 2023, according to CPI data. Prices have also fallen over the past year for dishes and flatware (down about 8%), laundry equipment (-6%), nonelectric cookware (-10%), toys (-3%), and tools and hardware (-1%), according to the CPI. Apparel prices are also down, for men's and women's outerwear (-12% and -4%, respectively), and infants and toddlers' apparel (-4%), for example. More from Personal Finance:

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