Walmart CEO Says Shoppers Could See Falling Prices in Coming Months

(Bloomberg) — The head of the world’s largest retailer just used the D word on an earnings call: deflation.

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“In the US, we may be managing through a period of deflation in the months to come,” Walmart Inc. Chief Executive Officer Doug McMillon told analysts on an earnings call Thursday.

Granted, prices of Walmart’s US groceries and general merchandise are higher than a year ago, and sharply up on a two-year basis. But McMillon said the increases are slowing and could even begin to reverse.

Read More: Walmart Sinks on Cautious Consumer Outlook, Late-October Dip

If that happens, Walmart shoppers could start to see deflation — or a decrease in prices — in dry groceries and consumables in the coming months, he said. Dry groceries are items as such as canned goods and pasta, while consumables refers to day-to-day products such as toothpaste. General merchandise prices “came down a little more aggressively in the last few weeks or months,” he added.

Even if overall prices don’t fall on an annual basis, McMillon’s comments underscore the slowdown in US inflation after the Federal Reserve ramped up interest rates. That’s a big change from the decades-high inflation that hammered shoppers in the wake of the pandemic.

McMillon, who gets a close-up view of US shoppers on a daily basis, now has to convince Wall Street that Walmart can continue to drive sales and market-share growth as inflation wanes. Potential deflation in basic goods would free up shoppers’ budgets to spend more on general merchandise, he argued — a win for Walmart since those products tend to be more profitable. Shares fell 8.1% in New York trading, the most since May 2022, after executives struck a cautious note on the outlook for the American consumer.

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Will the retailer lose the higher-income shoppers who flocked to its shelves when inflation jumped?

“It is not working out that way,” GlobalData analyst Neil Saunders said in a research note Thursday. “Americans remain pressured financially and are still looking to make their dollar stretch further — and Walmart is the place many have turned to.”

(Updates with details on deflation in fourth paragraph, shares in sixth paragraph.)

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