Lower grocery prices may soon be coming for shoppers.
Walmart CEO Doug McMillon said Thursday that the US food industry may be heading into a period of deflation after three years of punishing price hikes that have caused sticker shocker for shoppers at the grocery store. Food prices have increased 25% since the pandemic started.
“We may see dry grocery and consumables start to deflate in the coming weeks and months,” McMillon said. Walmart could enter “a deflationary environment.” Walmart is the largest retailer in the United States, and groceries make up more than half of its sales.
The pace of food inflation has slowed in recent months, but food prices are mostly still going up.
Food prices rose 3.3% annually in October from a year ago, according to the latest reading from the Labor Department. But prices on some staples such as bacon, seafood and eggs have dropped.
Prices on appliances, phones, airline tickets and toys have all dropped, according to the Labor Department.
Deflation would be welcome news for shoppers because it means lower prices. But it could be dangerous for the economy.
Falling prices can indicate weak demand, and consumer spending is a big portion of the economy.
If you think prices will go down in the future, you may delay making a lot of purchases today. When many people start to think that way, people spend a lot less money. That causes employers to lay off workers and can put an economy into a recession.
It’s also a lot harder for central banks to get an economy to grow if it slips into a period of deflation versus inflation. The Federal Reserve has been raising interest rates to cool the economy down.
Japan infamously had a period dubbed “the lost decade” from 1991 to 2001, when its economy continued to shrink as it experienced deflation. It took subsequent decades of stimulative measures to reintroduce inflation to help grow the economy.
CNN’s Elisabeth Buchwald contributed to this article.