Prices that decrease may appear beneficial, however deflation can be risky. Here is the explanation.

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 CNN reports from New York--

After enduring a period of accelerated cost raises for more than two years, shoppers at some establishments would undoubtedly appreciate the relief of discounts.

 However, those in charge of businesses, economists, and big investors are not so enthusiastic about it.

 In a Wednesday article from The Wall Street Journal, tech investor Cathie Wood – the founder of ARK Investment Management expressed her concerns about deflation, instead of its opposite, inflation. Wood commented, "We're seeing more and more signs of it."

 In the earnings call earlier this week, Home Depot CEO Ted Decker informed shareholders that the third-quarter earnings had been adversely affected by the decreasing cost of commodities like copper and lumber.

 Billy Bastek, Home Depot's executive vice president of merchandising, noted on the call that on average, framing lumber decreased by more than 20%, dropping from $545 per thousand board feet in the third quarter of 2022 to around $420.

 Bastek noted a decline of 5.2% in major purchases (those exceeding $1,000) compared to the same period of the preceding year.

 At the Home Depot's third-quarter earnings call, executives reported to analysts that deflation is adversely affecting their operations. Notably, they saw customers delaying buying larger items such as appliances, which have become cheaper than the year prior.

 With prices being reduced, why has there not been an increase in purchases?

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 The head of Walmart has indicated that a decrease in food prices may be on the horizon.

 Walmart has recently reported a decrease in the prices of grocery items, resulting in a deflation in the grocery sector. This has been welcomed by many customers, who have been able to benefit from the lower prices. Analysts are now expecting that this deflation will continue, as Walmart is determined to keep costs low.

 Economics 101 teaches that when the cost of something increases, the demand for it decreases, and vice versa when the price goes down.

 When deflation occurs, people anticipate prices to drop in the near future, which causes them to delay purchases. For example, if someone expects a substantial decrease in the cost of a new oven within the next month, they may decide to wait before buying it.

 When a substantial number of individuals adopt a particular mindset, it leads to a decrease in spending. This can create a recession if businesses are unable to hire enough workers due to the financial constraints.

 In the United States, broad-based deflation is not a common occurrence.

 In the United States, deflation is not a widespread issue, as it is in many countries, where inflation is the common state of the economy.

 In October, the prices of all goods and services in China were lower than the same month the year prior, coming in at 0.2% less.

 The newest Consumer Price Index reveals that American consumers have experienced a 3.2% rate of inflation year-over-year. In spite of this, the amount of the price hikes has decreased greatly. In other words, US citizens are still forking out more than before for their goods and services, but not at the same rate as before.

 It must be noted that the cost of many products in the U.S. has dropped significantly from the previous year.

 October CPI data shows that the price of eggs has dropped by 22%, the second-biggest decrease in costs compared to last year, behind health insurance.

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 Can the deflation in China have a positive effect on decreasing inflation in the Western world?

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 Doug McMillon, the CEO of Walmart, declared on Thursday that shoppers may shortly start to observe more standardized cost decreases in food markets. He additionally cautioned that US-based Walmarts could be entering a deflationary atmosphere.

 Airfares, gasoline, appliances, and smartphones are among the cheaper goods available in addition to eggs.

 Caldwell, head economist from Morningstar, called it "selective deflation." At present, he commented, this is "helping to bring the general level of inflation back to the Federal Reserve's 2% target with minimal harm to joblessness and production."

He explained to CNN that this facilitates for a "soft landing."

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