Where prices fell in October 2023 — in one chart

Inflation continued its broad moderation in October, down significantly from pandemic-era highs that hadn’t been seen in more than 40 years.

This dynamic — whereby prices for consumer goods and services are still rising but at a slower pace — is known as disinflation.

However, prices have actually begun to deflate in some areas of the U.S. economy. Deflation is the anti-inflation: It means consumers are actually seeing prices fall.

Largely, deflation is happening on the “goods” side of the U.S. economy, or the tangible objects that Americans buy, economists said. Goods encompass roughly a quarter of the consumer price index.

There are several reasons for this.  

For one, a strong U.S. dollar makes imported goods cheaper. Some of those savings get passed on to consumers, said Mark Zandi, chief economist of Moody’s Analytics.

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The Covid-19 pandemic snarled global supply chains, causing shortages that fueled big spikes in prices. Energy costs surged when Russia invaded Ukraine, pushing up transportation and other distribution costs.

Now, supply chain disruptions are largely in the rearview mirror, economists said. Energy costs have declined. In fact, energy prices, which include categories such as gasoline and electricity, have fallen 4.5% in the past year, according to the consumer price index.

Over the long term, consumers also generally see savings as manufacturers shift goods production to lower-cost areas, Zandi said.

Some prices, like those for airline tickets and eggs, have also declined off record-high levels. The latter, for example, soared largely due to a historically deadly bout of avian flu among egg-laying hens. Egg and airline ticket prices are down about 22% and 13% in the past year, according to CPI data.

It’s unclear the extent to which prices will broadly continue to drop.

“Only certain prices are likely to decline” on a sustained basis, Andrew Hunter, deputy chief U.S. economist at Capital Economics, previously told CNBC. “It’s quite rare for retailers to actually cut prices.”

Some of the declines are due partly to measurement quirks.

For example, the U.S. Bureau of Labor Statistics, which compiles the CPI report, controls for quality improvements over time. Electronics such as televisions, cell phones and computers continually get better. Consumers get more for roughly the same amount of money, which shows up as a price decline in the CPI data. 

Health insurance, which falls in the “services” side of the U.S. economy, is similar.

The bureau doesn’t assess health insurance inflation based on consumer premiums. It does so indirectly by measuring insurers’ profits. This is because insurance quality varies greatly from person to person. One person’s premiums may buy high-value insurance benefits, while another’s buys meager coverage.

Those differences in quality make it difficult to gauge changes in health insurance prices with accuracy.

These sorts of quality adjustments mean consumers don’t necessarily see prices drop at the store — only on paper.