Tuesday, July 26, 2011

For Some Products, Prices Have Been Falling

Item% Change
Last Year
Video Equipment-11.91%
Audio Equipment-5.31%
Sports Equipment-5.12%
Photographic Equipment, Supplies-4.85%
Cell Phone Service-3.34%
Clothing: Infant and Toddler-2.58%
Audio Disks-2.13%
Video Disks-2.04%
Nonprescription Drugs-1.37%
Outdoor Equipment-1.26%
Bedroom Furniture-0.83%
Natural Gas (residential)-0.80%
Leased Cars-0.76%
Tools and Hardware-0.62%
Source: BLS

Despite concerns by many that inflationary pressures are building in the U.S. economy, the table above shows price changes for products that have experienced deflation over the last year (June to June). In most past periods of inflation, like the 1970s, it was usually the case that almost ALL prices were increasing. The fact that we now have a period of mixed price changes (some rising, some falling and some flat) might suggest that the concerns about inflation are somewhat misplaced and overblown.


At 7/26/2011 2:40 PM, Blogger W.C. Varones said...

Let them eat iPads!

At 7/26/2011 2:53 PM, Blogger Eric H said...

I can't buy my current cell phone service any cheaper. Same price or higher as a year ago and the two years before that. I'd argue 0% inflation, but not negative. Seems that market likes to move in $10 increments too (hard to get a 3% change).

On the TV's, the gov't mandated digital conversion is over. Everybody bought one (or two or three) already. The LCD surplus and big price drop was forecast last year.

At 7/26/2011 3:00 PM, Blogger Paul said...

Cue Benji to copy/paste his blather about Japan and inflation chicken littles.

At 7/26/2011 3:05 PM, Blogger Benjamin Cole said...

Let's see what is not on this list.

1. Real estate. Oh that, and it is also going down in price, across all segments--office, industrial, retail, residential. The Housing Affordability Index is an an all-time high (most affordable).

2. Unit labor costs. Flat to down for three years.

3. Phone bills. $50 nationwide unlimited now--and on a cell phone. No need for two land lines, one office and one home anymore. I got rid of my fax line too, and tell people to send PDFs.

4. Delivery--remember when you had to send documents by bicycle or Fedex? Now you send a PDF. For free. Instantaneously.

5. With Quicken you have to be really dumb not to do your own books. No more bookkeeper.

6. With e-mail and cell phone, do you really need a Gal Friday anymore? No, not really, unless she has big boobs. Now, that can get expensive, you will experience inflation (of what we won't say).

In the private sector, things get better and cheaper. In the federal military and civilian sectors, hardware and services just get more expensive, and less resilient. Real crap is produced, like $3-billion-dollar airplanes (B2 bomber, $3 bil. each).

Happily, most of the economy is in the private sector.

The UFO Club and the Society for the Invention of the Perpetual Motion Machine will now tell you inflation is really, really serious.

Their star speaker: "Chicken 'Inflation' Little."

At 7/26/2011 3:28 PM, Blogger Wayne Adams said...

This reflects the general productivity gains being made in raw materials usage. However, these economic surpluses are being squandered in the health care and education sectors. In those sectors, when all the subsidies and real economic resources are factored in, I would guess the marginal products are declining, if not yet already less than 1.

At 7/26/2011 3:52 PM, Blogger arbitrage789 said...

The controversy is far less about the current inflation rate, and much more about where it’ll be in 3-5 years.

And with respect to that issue, the fact is that no one can prove a prediction; equally true is that no one can disprove it either.

In investing, knowing where the markets are right now is virtually worthless. It’s where the markets are going that matters.

At 7/26/2011 3:55 PM, Blogger Benjamin Cole said...


We have heard a lot of squawking from the Chicken Inflation Littles that a lower dollar would boost import prices.

Yet most of these items on the Perry list are imported--and getting cheaper!

Squawk, squawk, squawk and cluck.

At 7/26/2011 4:39 PM, Blogger Mike said...

It seems that all of those are a result of sector advancement, surplus, attempts to incentivise a sluggish market and enhanced productivity. I'm not saying that lower prices aren't lower prices, but am I the only one who thinks that almost all of these would be even cheaper if the cost of delivering these items wasn't so high?

At 7/26/2011 4:56 PM, Blogger Mike said...

Oh, and, Benjamin...
1. Real estate is obvious, but cost of actually living somewhere is going up, whether it be rent, insurance or taxes. My mortgage (fixed) went up again this year due to the other escrow items.

2. Unit labor, when hovering around 9% unemployed, should be flat...or down...right?

3. Phone is at least the same if not higher. I still have my landlines for various reasons. My cell service has gone nowhere but north.

4, 5 and 6. If you deliver a 10-pound rock to somebody, that cost is actually higher.
If you replace an item or service with a completely different method or service, the cost of doing specific things may be cheaper, but the cost of the original service remains.....until the demand and supply drop to a point that the price goes up. For example: I have a feeling that, in a hundred years, the price of a nice, hard-cover book may be back to what it was a hundred years ago.

At 7/26/2011 5:15 PM, Blogger Benjamin Cole said...


We are enjoying disruptive technologies that radically cut business costs.

I suspect radical reductions in costs would be the norm in many areas, such as health care, save for government licensing, doctor groups and regulations etc.

I wonder if you couldn't plug into sensors online and get a diagnosis, and then medicine by delivery service.

The cost of military hardware and services should go down every year, not up--but the defense establishment is public-sector coprolite, so what do you expect?

Homebuying is a funny one--it is cheaper than ever but as you point out, you don't buy a home every year.

Anyway, inflation is dead. An open economy like the US, in which capital, labor, services and goods flow freely, is not in danger of inflating.

At 7/26/2011 5:32 PM, Blogger Mike said...

I understand what you're saying, but I don't think you are taking what I'm saying into consideration.
Yes, you can do the same things (sometimes) for less money.

But for those who still rely on traditional services that you may have abandoned, the prices ARE going up....and have been.

Paying X to do Y may be now cheaper or unnecessary if one can pay <X to do B (which offers some Y service), but it is not the same product and can't be compared when we're talking about the rising cost of Y.

At 7/26/2011 5:38 PM, Blogger Benjamin Cole said...


I see what you mean. Anyway, enjoy your posts.

At 7/26/2011 5:57 PM, Blogger Mike said...

Hey Benjamin,
One more thing.
I think you might enjoy this (as you brought it up in your last post).

Prof. Perry would enjoy this as well.


It's a few apps for IPhone that can do (sorta) simple health-care-related tasks. Pretty cool actually.

At 7/26/2011 5:58 PM, Blogger Mike said...

Oh, I meant to tell you to scroll down to 2nd story....first one is about cars....

At 7/26/2011 10:39 PM, Blogger W.C. Varones said...

Good God, man! Isn't it obvious?

Things with more technology than resource inputs are getting cheaper.

Things with more resource inputs than technology are getting more expensive.

Which is fine for well-off middle-aged tech enthusiasts, but it sucks for poor people who are struggling to put food on the table and gas in their cars!

The Federal Reserve is killing the poor and minorities while further enriching the wealthy with asset inflation.

Dude, I'm on your side of the wealth gap, but let's not ignore those left behind.

At 7/27/2011 8:43 AM, Blogger PeakTrader said...

Many homeowners refinanced (again) to reduce mortgage payments, e.g. $300 a month.

Also, many homeowners were able to live in their homes for free, e.g. for two years, until repossesion.

Moreover, for example, boxes of cereal, including multigrain Cheerios, have been on sale many times over the past year, e.g. $2.50 instead of $4.99, which is the time to stock up.

Although milk prices are up a little (perhaps consumers are paying $0.50 a week more), a gallon of milk was about $4.00 in the early 2000s.

At 7/27/2011 9:47 AM, Blogger morganovich said...


and what else is missing:

food? way up.

healthcare? up.

education? way up.

fuel? way up.


up big, not down.

rents are up 7.4% yoy.


home prices drop, but that hurts you if you already own one. your currency deflates too. that does not create "affordability".

the only one benefiting from dropping prices is a first time buyer, that's a tint market, not even 10% of size of rentals.

sorry bunny, but once more, you just expose your ignorance of the facts.

i'd bet that the list i just cited is over 2/3 of household spending.

you can't make that up in cheap ipods.

At 7/27/2011 11:04 AM, Blogger morganovich said...


even the BLS is showing big jumps in food prices.

food at home is up 4.7% from a year ago, and that's with geometric weighting (substitution).

absent that, it would be more like 7%.

sure, that's less than some of the commodities, but it's still quite high. further, the slack has been taken out of the system and new commodity hikes will flow through to finished goods pricing at a higher rate than before.

At 7/27/2011 1:02 PM, Blogger PeakTrader said...

This comment has been removed by the author.

At 7/27/2011 3:33 PM, Blogger PeakTrader said...

Morganovich, I've explained before how a geometric weighting systematically overstates inflation.

Also, food prices rose from a low level after the recession, and it remains a small proportion of income.


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