Friday, May 13, 2011

For Many Items, Prices Are Falling Not Rising

                         Item% Change
   Last Year    
Photographic Equipment, Supplies-4.69%
Audio Equipment-3.91%
Sports Equipment-3.89%
Clothing: Infant and Toddler-3.56%
Cell Phone Service-3.50%
Audio Disks-3.17%
Leased Cars and Trucks-2.98%
Pets and Pet Supplies-2.54%
Hair, Dental, Shaving Products-2.10%
Video Disks-1.95%
Information Processing-1.84%
Living Room and Kitchen Furniture-1.60%
Natural Gas-1.50%
Furniture and Bedding-1.43%
Internet Services-1.28%
Apparel: Men's-1.20%
Recreational Reading Materials-1.18%
Video Audio-1.13%
Clothing: Women and Girls-0.75%

This is an update of a post I featured in February: 

Rising food and energy prices have received a lot of media attention lately, along with concerns about the threat of rising inflation. The chart above (using BLS data via Economagic) shows a sample of 26 products or services that have experienced deflation in the last year (April 2010 to April 2011) based on new CPI data released today by the BLS.  

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 falling prices, or b) take it for granted and don't appreciate the incredible savings over time in many of the products that we all buy. There are many, many products like computers, cameras, new cars, clothing, TVs, appliances, electronics, software, etc. that are significantly cheaper today than a year ago, and are probably cheaper today than five years or ten years ago in many cases.

Or maybe it's because we buy computers, TVs, appliances, and lease new cars INFREQUENTLY (every 5 years 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 amount of mis-perception among the general public and media that ALL prices are going up, which the data above show is clearly not the case. 

Overall, general inflation is a period when most prices (and wages, interest rates and home prices) are rising, and I don't think we're anywhere close to meeting those conditions yet. Not as long as so many prices are declining or staying the same, and not rising.


At 5/13/2011 1:55 PM, Blogger Michael Hoff said...

I don't know quite how to put this intelligently, but I'll try. Of all those items, there are only two that people likely truly need to buy: the shampoo/dental care line item and natural gas. So are those price decreases due mainly to lower demand and fewer workers, rather than decreases in the cost of physical materials? The stuff we need to buy (lots of food items, gasoline, etc.) are up, or so it seems from my shopping excursions. So do those reflect increases in the actual cost of materials?

Still not sure I know where I'm going with this.

At 5/13/2011 2:00 PM, Blogger MaggotAtBroad&Wall said...

Notice there are no services on the list. When's the last time a lawyer lowered his hourly rate? When's the last time you paid less to have a dentist clean your teeth? College tution?

Heck, I've been going to the same barber for about five years and the cost for a basic haircut was raised $2 on my last visit.

At 5/13/2011 2:06 PM, Blogger juandos said...

I don't know where prices of natuaral gas, internet services, and leased cars and trucks are going down...

Nobody I know in six states has seen their cost of internet services go down, they've all gone up as mine has...

Here in eastern part of Missouri I pay almost 10% more for natural gas than I did back in Jan. of '10...

Leasing vehicles has gotten seriously ugly though in all honesty it has more to do with the cost of certain types of insurance coverage and with the price of gasoline...

Other than that though the list pretty much reflects my own experiences...

At 5/13/2011 2:41 PM, Blogger PeakTrader said...

Some people are better shoppers than others:

"The GDP price deflator in calendar 2010 increased 1.0%, little different from a 0.9% rise in 2009 and less than half the 2.2% advance of 2008."

At 5/13/2011 2:48 PM, Blogger morganovich said...

perhaps, but take healthcare, food, fuel, etc there is a great deal of inflation.

MIT's Billion prices projects is running at around 7% annualized inflation year to date.

cherry picking a few items proves little.

At 5/13/2011 2:50 PM, Blogger Mark J. Perry said...

MIT's BPP hasn't been updated recently, not since April 24.

At 5/13/2011 2:54 PM, Blogger Benjamin Cole said...

I can't understand the fetish some people have for injurious low inflation rates.

Japan has had no inflation in 20 years, and they are in perma-recession. Equities and property have lost 80 percent of value in Japan.

In the USA are climbing out of the worst recession since WWII. We have unused productive capacity, unemployed people, and tons of lost production. Now is not the time to fret about low, single-digit inflation.

Wake me when we get to 5 percent inflation and 5 percent growth in GDP. Let that ride for a years years, and then call me.

Dudes, we had moderate inflation all through the 1980s and 1990s, and we boomed the whole time.

The Nipponistas are the most dire threat to American prosperity today. Al Queda looks like a bunch of fairies next to the Chicken Inflation Little crowd.

Inflation today is about as serious as Donald Trump's run for President.

Birthers, inflation conspiracy buffs, and Vincent Foster murder buffs unite! Also, bin Laden is still alive. Obama faked that to get re-elected.

At 5/13/2011 2:54 PM, Blogger Buddy R Pacifico said...

This comment has been removed by the author.

At 5/13/2011 3:01 PM, Blogger Buddy R Pacifico said...

Here is a graph that show lower prices for Durables vs. higher Services prices, posted by Scott Grannis on April 29, 2011.

The Relative Price Shift for Services and Non-Durables, has been a force moving higher since as far back as 1995 (maybe longer). Durables, as stated, have been consistently moving lower, during this time frame.

At 5/13/2011 3:19 PM, Blogger Paul said...

"The Nipponistas are the most dire threat to American prosperity today."

Uh, that would actually be your boyfriend. and his fellow socialists. Your genius solution is to just paper over his never ending fiascos with monopoly money.

At 5/13/2011 3:39 PM, Blogger morganovich said...


my comment was for the index through the 24th.

it was 101.1082 at the end of 2010.

it was 103.454 on 4/24/11.

that's a 2.32% increase in under 4 months.

that annualizes to over 7.1%.

i don't see your point about recent updates. what do you think has changed in the last 3 weeks?

you can pick a dozen items and say they are going down in price, but the prices of a billion certainly have not been.

At 5/13/2011 3:54 PM, Blogger pkd said...

I'm shocked, Shocked! For prices to change like this they must be manipulated by speculators! Call a hearing!

At 5/13/2011 3:54 PM, Blogger Junkyard_hawg1985 said...

Did anyone notice that for the past 12 months, inflation in medical care (2.9%) was lower than the overall inflation rate (3.2%). When is the last time that happened?

At 5/13/2011 4:05 PM, Blogger PeakTrader said...

This comment has been removed by the author.

At 5/13/2011 4:09 PM, Blogger PeakTrader said...

Over the past two weeks, oil prices fell over 10%, along with other commodities.

At 5/13/2011 4:37 PM, Blogger PeakTrader said...

Perhaps, 6% nominal growth, or 4% real growth and 2% inflation, will lift the housing market:

Inflation hits 2-1/2 year high, seen peaking
May 13, 2011

Stripping out volatile food and energy costs, core CPI rose a mild 0.2 percent from March. The 12-month increase at 1.3 percent was at its highest level since February 2010. The Fed, however, would like to see that closer to 2 percent over time.

At 5/13/2011 4:54 PM, Blogger PeakTrader said...

Bill Gross Jan '07:

Bloomberg's Tom Keene: "...As you know, I'm a big fan of nominal GDP - this, folks, is real GDP plus inflation. It's the 'animal spirits' that's out there. You say be careful, Bill Gross. It looks real good to me, Bill. I see 6% year-over-year nominal. You say that's going to end?"

Pimco's Bill Gross: "...Ultimately, the inflation component affects the real growth component. To the extent that you have nominal GDP - in my forecast 3 to 3.5%, that's really not enough growth in terms of the economy itself to support asset prices at existing levels. And so, declining assets prices ultimately factor into eventually lower real growth. But that's not for mid-2007 but perhaps for later in the year."

Tom Keene: "When we look at six months of low nominal GDP, is that enough to link directly into the 'animal spirits" of the business investment component of GDP - the "animal spirits" of business men and women?"

Bill Gross: "Well sure it is. When you realize that the average cost of debt in the bond market - and therefore in the economy and this includes mortgages - it is about 5.5%. If you can only grow your wealth and service that debt at 3.5% rate, then that has serious implications.

When you go back to 1965, Merrill [Lynch] did this study - in terms of asset prices during periods of time when nominal growth grew less than 4%. Risk assets have been negative in terms of their appreciation and actually bonds have done pretty well. The question becomes why hasn't that happened yet, and I think we're simply in a period of time where there are leads and lags that are much like the leads and lags of Federal Reserve policy."

At 5/13/2011 6:09 PM, Blogger Benjamin Cole said...

Indeed, a huge and glaring problem with the snivelers who say Japan's struggles have been mythical has to do with the performance of the Nikkei.

After hitting an all-time high of 39,000 in the late '80s, it's been down since, and presently sits around 9,600.

Credible arguments can be made about stock markets perhaps being wrong for a time, but can they really be wrong for over two decades?

Commercial land [prices in Japan are down 80 percent in the same time frame.

So everybody in Japan is getting richer, but the stock market and commercial land prices do not reflect that.

Deflation, and tight money, have wrecked Japan. Is is becoming a backwater nation, as China and S. Korea roar ahead.

Some Japanese companies, to get out from under the suffocating yen policy of the Bank of Japan, are moving production to Thailand.

BTW, does anybody in the USA really want to see 2,500 on the Dow in 20 years? Does anybody regard that as a goal?

At 5/13/2011 7:49 PM, Blogger Buddy R Pacifico said...

" Junkyard_hawg1985 said...
Did anyone notice that for the past 12 months, inflation in medical care (2.9%)..."

J. hawg 85, Where presented and what type of healthcare -- hospital, doctor? If healthcare in general, you have uncovered a significant stat. Thanks.

At 5/13/2011 8:17 PM, Blogger geoih said...

How do you expect to learn anything from aggregating the prices of so many heterogeneous items, from a constantly changing market? Prices that are set by subjective individual values, that constantly change over time?

Perhaps next you could study the populations of polar bears, sewer rats and starfish, then tell us what that means for the future of the biosphere.

At 5/13/2011 8:46 PM, Blogger James said...

Everything on the list of falling prices is something that either costs very little or can be postponed indefinitely. If you do not eat or drive a car then inflation is much less. Earlier this week I attended the Las Vegas MoneyShow. Several of the presenters gave estimates of the inflation in the real economy. The one where people eat and buy gas. The consensus is that inflation is running at 3 to 5 percent. Nobody is buying the low inflation nonsense.

At 5/14/2011 9:11 AM, Blogger VangelV said...

Still not sure I know where I'm going with this.

I think that you are going in a better direction than Mark. He is still trying to ignore all of the data showing inflation and will grasp at any straw that comes his way.

At 5/14/2011 10:59 AM, Blogger Benjamin Cole said...

May 13, 2011, 5:52 PM
Inflation Expectations

This post by Krugman shows inflationary expectations, as measured by TIPS-Treasuries spreads, is now falling.

Some observers have been warning about inflation for years. Yet where is it?

How do you get inflation with declining unit labor costs and 6 percent steady growth in M2? With falling real estate values? With the blow-off in commodities, even that sector will not be doing much for a while

BTW, it was incorrect to ever cite commodities as a long-term inflationary factor. Unlike equities, a rally in commodities has a ceiling. Where (in a boom) a hot stock can go to 20, then 30, then 40 times earnings, in commodities you reach a point where consumers stop buying.

I might pay 50 times earnings for a hot stock if I thought it had a great future. I will not pay $10 for a gallon of gasoline. I will bike to work.

Ergo, the fears attached to commodities inflation have always been misplaced.

At 5/14/2011 8:12 PM, Blogger VangelV said...

Some observers have been warning about inflation for years. Yet where is it?

In food, energy, services, health care, commodities, and most places you want to look.

How do you get inflation with declining unit labor costs and 6 percent steady growth in M2? With falling real estate values? With the blow-off in commodities, even that sector will not be doing much for a while

The M2 growth is an important clue. When the money supply is inflated you will get prices going up somewhere. Mark has been telling us that stocks have been rising steadily as have commodities, health care costs, tuition, insurance premiums, etc. Those things all matter even if you wish to ignore them.

With a new QE program on the way because Obama wants to get elected and the debt ceiling about to be raised by enough to keep the debated from coming up until after the next election you may see a lot of your creditors a bit nervous about the USD and more than willing to look for a way to hedge inflation. If the floods do sufficient damage to this year's crop and food price inflation takes off I doubt that you will be able to ignore reality for all that long. The only way to prevent a huge increase in commodity prices is to get a contraction in the economy. But given the political incentives I doubt that the Fed and Treasury will stand aside and let one develop without a significant fight.

At 5/15/2011 5:32 AM, Blogger juandos said...

"MIT's BPP hasn't been updated recently, not since April 24"...

Have you looked at PriceStats Professor Mark?

The front page description: "PriceStats monitors the prices of ~5 million products sold by ~300 online retailers across 70 countries'...

At 5/15/2011 8:50 AM, Blogger Mark J. Perry said...

Yes, I've checked the PriceStats website, but they don't provide the actual data on its website. Either it's not yet available, or it requires a paid subscription. If that's not accurate, please let me know how to access the price data on hte PriceStats website.

At 5/15/2011 7:48 PM, Blogger juandos said...

Dr. Perry did you try the PriceStats contact page?

I haven't had the chance yet but I'm curious to see what they have to offer and what it might be priced at...

At 5/15/2011 8:10 PM, Blogger Junkyard_hawg1985 said...

"J. hawg 85, Where presented and what type of healthcare -- hospital, doctor? If healthcare in general, you have uncovered a significant stat. Thanks." - Buddy

Buddy, if you look on page 9 of the BLS report (Table 1), it has inflation for overall healthcare as well as the components. This 2.9% number was the overall healthcare inflation for the past 12 months. Professor Perry provided the link to the report in this Carpe Diem post.

At 5/16/2011 9:38 AM, Blogger morganovich said...

"Deflation, and tight money, have wrecked Japan. Is is becoming a backwater nation, as China and S. Korea roar ahead."

wrong as ever benji.

you are mistaking cause and effect.

japan's economy fell apart due to a bubble bursting and demographic issues.

that led to deflation and stock market stagnation.

they pursued LOOSE, not tight money. you do not seem to even understand what those terms mean you are like an infant repeating sounds it heard. it may sound like words, but it's just babble.

you ever bother to read that study about japan and money supply that i have showed you about 3 times?

i'm guessing no, because if you had, you would have stopped spouting this drivel.

inflation does not cause real growth. look at the 70's.

we already there. the last decade has been a decade of staglation, we just defined it out of existence.

arch bubble baby and political hack greenspan has undone all of volcker's good work and even gone a step further by making it difficult to even see that we are in trouble.


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