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Walmart prepares for the holidays
A drop in food prices could soon be coming for shoppers.
Walmart CEO Doug McMillon said Thursday that the U.S. food industry could be headed for a period of deflation after three years of severe price hikes that shocked grocery store shoppers. Food prices have increased by 25% since the start of the pandemic.
“We could see dry food products 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 account for more than half of its sales.
The pace of food inflation has slowed in recent months, but food prices mostly continue to rise.
Food prices rose 3.3% annually in October compared to last year, according to the latest data from the Labor Ministry. But prices for some staples like bacon, seafood and eggs have fallen.
Prices of appliances, phones, plane tickets and toys have all fallen, according to the Labor Department.
Deflation would be good news for buyers because it would cause prices to fall. But this could be dangerous for the economy.
A drop in prices can indicate weak demand and consumer spending is a large part of the economy.
If you think prices will drop in the future, you might delay your purchases today. When many people start thinking this way, they spend a lot less money. This causes employers to lay off workers and can push the economy into a recession.
It is also much more difficult for central banks to grow an economy if it falls into a period of deflation rather than inflation. The Federal Reserve raised interest rates to calm the economy.
Japan experienced an infamous period, nicknamed “the lost decade”, from 1991 to 2001, during which its economy continued to contract due to deflation. It took decades of stimulus to reintroduce inflation and help the economy grow.
CNN’s Elisabeth Buchwald contributed to this article.