The U.S. is experiencing deflation for the first time in three years. This trend is primarily observed in goods such as appliances, furniture, and used cars.

What Happened: Industry experts predict that the prices of these goods might keep declining, possibly hastening inflation back to the Federal Reserve's 2% target by the latter half of next year, reported The Wall Street Journal.

Long-lasting or durable goods have recorded a year-over-year price drop for five consecutive months. In October, they stood 2.6% lower than their peak in the previous month, according to data from the Commerce Department.

This price reduction has led to a dip in core inflation, which leaves out volatile food and energy categories, to 3.5% in October, a decrease from 5.5% in September 2022.

However, services like home rental and car insurance continue to increase in price, even if at a slower pace. In October, they were up 4.4% from a year earlier, slower than September's 4.7% increase but still significantly higher than pre-pandemic levels.

Supply disruptions due to the pandemic accounted for approximately half of the inflation surge in 2021 and 2022, according to Adam Shapiro, an economist at the San Francisco Fed.

Currently, supply chains are operating smoothly, and consumer demand has been curtailed due to the Fed's interest rate hikes. The White House Council of Economic Advisers stated in a recent blog post that these factors account for roughly 80% of the decrease in inflation since 2022.

Despite the overall deflation trend, Fed Chairman Jerome Powell has underlined that inflation in services, excluding housing, also needs to be reduced.

Why It Matters: The deflationary trend contrasts with earlier warnings of looming inflation. For instance, Ark Invest founder Cathie Wood had anticipated a deflation risk in an interview with Benzinga in August 2023. She expected interest rates to fall, contradicting the Federal Reserve's suggestion of a "higher for longer" interest rate scenario.

Furthermore, the resurgence of consumer spending during the holiday season, despite inflation worries in November, could have contributed to the current deflationary trend in goods prices.