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After more than two years of steep price increases, the discounts at some stores will certainly feel like a much-needed respite.
But business leaders, economists and investment moguls are less enthusiastic about this.
Technology investor Cathie Wood, founder of ARK Investment Management; told the Wall Street Journal In an article published Wednesday, she said she was more worried about deflation, when prices fall, than the opposite, inflation. “There are more and more signs of that,” she said of deflation.
Falling prices of products such as copper and wood will have a “negative impact” Home Depot third quarter earningsCEO Ted Decker told investors during an earnings call earlier this week.
“As an example, the average price for framing lumber was about $420 per 1,000 board feet, but the price in the third quarter of 2022 was about $545, representing a decrease of more than 20%,” Home Depot said. said Billy, Executive Vice President of Merchandising. Bastek added by phone.
“High-value competition trades, or trades over $1,000, were down 5.2% compared to the third quarter of last year,” Bastek said.
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Home Depot executives told analysts during the company’s third-quarter earnings conference that deflation is hurting the company’s business. In particular, they note that consumers are cutting back on big-ticket items, such as home appliances, which are now cheaper than a year ago.
One of the first lessons students learn in Economics 101 is that when the price of a good increases, people demand less of that good. And when the price of a product decreases, people want more of it.
But the problem with deflation is that once people start expecting prices to fall in the future, there is little incentive to buy now. For example, unless you absolutely have to, why buy a new oven today if you think the price will drop significantly in a month?
If more people think that way, their spending will drop significantly. If that means businesses can’t afford to hire more workers, it could cause a recession.
Deflation is generally not a problem Like many countries, the United States is experiencing inflation.
However, prices for all goods and services have increased in China. 0.2% drop in October Comparison with the same month last year.
According to the report, consumer prices in the United States are up 3.2% compared to a year ago. Latest consumer price index. But while Americans are still paying more for goods and services than they were a year ago, the pace of increase has slowed significantly.
Still, many products in the U.S. are significantly cheaper than they were a year ago.
For example, October CPI data shows that egg prices fell 22%, making it the second-largest drop after health insurance compared to the same month last year.
Walmart CEO Doug McMillon said Thursday that consumers will soon be able to do so. More uniform price reductions at grocery stores. He also warned that U.S.-based Walmart could find itself in a “deflationary environment.”
In addition to eggs, other inexpensive items include airline tickets, gasoline, electronics, and smartphones.
Preston Caldwell, Morningstar’s chief U.S. economist, called this “selective deflation.” For now, he said, it’s “helping bring overall inflation back to the Fed’s 2% target with minimal pain in terms of job losses and lost production.”
“In other words, it allows for a soft landing,” he told CNN.