There's Been Major Deflation for Some Products

Rising food and energy prices have received a lot of media attention lately, along with concerns about the threat of inflation. The chart above (using BLS data via Economagic) shows a sample of products that have experienced significant deflation in the last ten years (as well as deflation in the last few years in almost all cases), double-digit percentage decreases in all cases except for new cars.

Considering that average hourly earnings have increased by almost 40% over the last ten years, the real prices of those products have fallen by an even greater amount, a HUGE amount. In other words, there are many, many products like computers, cameras, new cars, clothing, TVs, appliances, electronics, software, etc. that are significantly cheaper today than ten years ago, especially after adjusting for increases in earnings.

One reason we don't pay much attention to these price decreases is probably that they happen so gradually and consistently over time, so we either a) don't notice the savings, or b) take it for granted and don't appreciate the incredible savings over time in many of the products that we all buy.

Or maybe it's also because we buy computers, TVs, appliances, new cars INFREQUENTLY (every 5 year or more in some cases), and don't notice or appreciate the price decreases the same way we notice price changes for food and fuel that we purchase FREQUENTLY?

But there does seem to be a certain degree of misperception among the general public and media that ALL prices are going up, which is clearly not the case.

Comments

[CLH:]

You are right again. We are experiencing deflation (same as Japan 1990s). Food and energy are very volatile so are left out when measuring inflation. Commodities are correctiong so food and fuel will soon go down. Dollar headed up and gold down--no inflation.

2008 Jul 24 08:23 AM

[ksmithdc:]

As a consumer of these things, I'm delighted to learn of this. Most of this stuff is manufactured over in China. So perhaps the deflation hurts them more than it hurts us.

2008 Jul 24 09:40 AM

[zigger:]

the inflation we're all concerned about is in the last year or less. What if you recalculated for that period? I'd be interested to see that, but based on my own experience at stores, I think you'd see everything has gone up.

2008 Jul 24 09:41 AM

[Lansingman:]

I assume these deflation numbers take into account technical improvements. For instance a laptop which might cost $600 to $1,000 now was not even available 10 years ago. However the laptops that were available then did not cost $6,000 to $10,000.

2008 Jul 24 10:47 AM

[Joyful Alte...:]

lansingman, that must be the case for the deflation numbers. My $200 12-year-old television surely isn't in the stores at $50 now.

2008 Jul 24 12:16 PM

[Portfolio M...:]

You are exactly right, Lansingman. This superficial article relies on the ridiculous "hedonic adjustments" used in CPI calculations. It is true that the worst inflation is in services (healthcare and higher education, for example) and not in products. But the deflation numbers cited above are useless without an explanation of the (dubious) assumptions behind the hedonic adjustments for the perceived superior utility of today's products. If you want to see some serious discussion of deflation, which is now a real problem, check out the discussions at Minyanville and Mish Shedlock's globaleconomicanalysis...

2008 Jul 24 02:12 PM

[Did U Think...:]

Wages may be up but so is inflation. Real wages are flat.

2008 Jul 25 01:12 AM