“In the US, we may be managing through a period of deflation in the months to come,” Walmart 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. 

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. 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. 

Will the retailer lose the higher-income shoppers who flocked to the retailer 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.”