Why smartphones are getting cheaper in the CPI

Why smartphones are getting cheaper in the CPI

Shoppers queue outside an Apple store during the launch day of the new iPhone 14 series smartphones in Hong Kong, on September 16, 2022.

Miguel Candela | Anadolu Agency | Getty Images

The closely watched CPI continues to show core inflation in the US hovering at levels Last seen in the mid 80’s.

Prices for a variety of goods and services, including food, air travel and gasoline, rose in the latest reading released last week. On a 12-month basis, overall inflation rose 8.2%, according to the Bureau of Labor Statistics, which publishes the consumer price index.

But only one product category was monitored in the Consumer Price Index recorded a decrease of 22%deflation shows: smartphones.

This may seem counterintuitive. Most phones are expensive, and the prices of the best ones don’t come down. Apple released new iPhones in September at Same prices in the US As last year’s options, for example. The cost of advanced Samsung devices As much as $1800 this year. Average selling prices of smartphones keep going up in markets around the world.

It turns out that smartphones are not getting cheaper. They are getting better. This is why the CPI shows them deflation rather than inflation like many other commodities.

Here’s why: Usually, the CPI contains price comparisons for identical items, the prices of which don’t change much from year to year. Therefore, he might compare eggs to eggs, for example. But in the case of smartphones, the Census Bureau has to control which devices are getting better every year. If the smartphones are getting better and the price is still the same, then the office records a price drop.

“There were a lot of dips in [smartphone] index. Jonathan Church, the bureau’s economist, said this is really very much about quality improvements.

Twice a year, the bureau looks at new smartphone models and measures how they’ve improved — whether they have cameras, better displays, or other new features.

“For smartphones, we’re talking about things like screen size, RAM, processor speed, phone camera, or back camera, whether it’s foldable, or things like that,” Church said.

The office then “adjusts the quality”. If the price of a new iPhone doesn’t go up but the phone has new features, the CPI determines that this device is more valuable than the old one, and assumes consumers get more value for the same money.

Quality adjustments are quantified using the delicious modeling method, and the office uses data from a third-party dataset that includes smartphone specifications.

or, like put it in the office: “If a replacement smartphone is different from its predecessor and the value of the difference in quality can be accurately estimated, then a quality adjustment can be made to the price of the previous item to include the estimated value of the difference in quality.”

The bureau cataloged smartphone technologies to a starting point in late 2019, when Apple’s latest device was the iPhone 11 and Samsung’s best device was the Galaxy S10. In fact, smartphone prices have fallen since 2019, according to the Consumer Price Index.

Ultimately, Church said, smartphones may mature into a type of product that may experience price hikes and inflation. But the rate of improvement must slow.

“Only at a certain maturity stage of the cycle does their price start to rise again,” Church said. “It appears that smartphones in general are still very early in the life cycle.”

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