Since 1995, durable goods (cars, televisions, computers and the like) have been getting cheaper in the U.S. That's even as the prices of services and nondurables have mostly kept rising. In the chart above, prices are viewed using 2009 as the base year. Here's a chart using 1960 as the base instead: Finally, here's the same data as a series of year-over-year percentage changes, which is how we usually talk about inflation or deflation: The way information is presented really shapes how we understand it, no? The bottom chart tells a story many of us are familiar with: the Great Disinflation. The overall inflation rate rose seemingly unstoppably from the mid-1960s through 1980, then encountered the immovable object that was Paul Volcker. Ever since, the rate of inflation has been falling. Similar stories have unfolded in other developed countries, and tighter monetary policy is generally seen as having played the leading role. The lack of a major global oil-supply crisis since the early 1980s -- those two big spikes in nondurable-goods inflation in 1973-1974 and 1979-1980 were all about oil -- obviously hasn't hurt, either. Looking at the top two charts, though, I see a couple other stories begging to be told: The story behind the great durable-goods deflation (which started in the second quarter of 1995). The story behind the persistence of inflation in services. The third chart shows that the pace of increase slowed after 2008. But service prices have continued to rise. The great durable-goods deflation is what I'll focus on today. It does not appear to be driven by central banks and their ability to create and destroy money. "Inflation is always and everywhere a monetary phenomenon," Milton Friedman wrote, and that presumably means that deflation is always and everywhere a monetary phenomenon, too. But monetary forces sweeping across the whole economy don't explain why durable-goods prices would follow such a different trajectory than other prices. So what does explain it? One explanation is that goods (both durable and nondurable) are tradeable while services generally are not. That is, unlike most services, goods are bought and sold across national borders. So the rise of China as a giant new low-cost producer of manufactured goods in the 1990s and 2000s put lots of downward pressure on durable-goods prices, but not so much on nondurable goods (the three main categories of nondurables are food, energy and clothing, and China is a big exporter of only the third) and none at all on services. The other explanation is that manufacturers of durable goods keep getting better at making them. The economics term for this is multifactor productivity growth, and it's been much higher for the past few decades in durable-goods manufacturing than in nondurable-goods manufacturing. Productivity growth in services is harder to measure, but seems to have been lower than in manufacturing (although there's some argument about that). It's not just that durable-goods manufacturers have gotten more efficient in making things. It's also that they churn out products that are often vastly superior to those of the past, most notably computers and other electronic devices. Government inflation measures in the U.S. incorporate "hedonic quality adjustments" to try to reflect such improvements. These adjustments are often criticized by skeptics as a manipulation of the inflation rate, but they can't really be avoided. Yes, an iPhone costs a lot more than a Princess telephone did 25 years ago, but it is capable of exponentially more. And a low-end Android phone that does almost as much as an iPhone costs less than a Princess does now! Technological progress (the driving force behind multifactor productivity growth, and also of the huge gains in living standards over the past two centuries) is a wonderful reason for persistent durable-goods deflation. Global competition isn't bad either. Brian Barnier, the consultant and economic-data maven who gave me the initial idea for this column, sees goods deflation as a cause for economic optimism. But the monetary arguments of Friedman, his intellectual forebear Irving Fisher and many economists since have convinced central bankers that economy-wide deflation is a really bad thing. It makes it much harder for individuals and businesses to repay their debts, the reasoning goes, which can suck the economy into a downward spiral. With durable-goods prices falling and falling, the Federal Reserve has thus been forced to keep monetary policy loose enough that other prices go up. That has to be at least part of the story behind the persistence of inflation in services. http://www.bloombergview.com/articles/2016-02-26/stuff-keeps-getting-cheaper
It's called technology.... That's how the entire CPI should behave under steady money supply conditions.
It's called old man Walton who started Walmart had a policy of 98% of goods sold in his stores were made in USA. He died, his kids took over and their stores went from USA made to 98% foreign goods made, that made corporations move their manufacturing from USA to mainly China. When Walton controlled his stores, he didn't care that his goods cost more than foreign made, but he wanted USA citizens to have a job and people with jobs will continue to buy his products. There are 4574 Walmart stores in USA as of January 1, 2016, huge buying power and they do not care if the product companies here is the states fail, Walmart dictates the wholesale price, there have been many companies recently where they tell Walmart to just stick it, we will wholesale to Target, Sears, etc....Walton died in 1992, am sure he be extremely angry of what his kids allowed to happen.
2005 I purchased a new PU - ~ $28K Same PU today - ~$70K Somebody (not you JL) is bullshitting the rest of us about things getting cheaper RN
It's really funny in ways... since technology has progressed and durable goods have now become cheaper to make for the same relative level of quality - we should all be benefitting from that, right? Well newsflash: we *are* benefitting from it. There's really no reason everything we buy and use has to integrate more and more and more technology and/or continually cost more. At a certain point a phone is a phone, a computer is a computer, and a kitchen table is a kitchen table. We have *everything* we ever need to live with total comfort in our lives without even needing to continually buy things so we should be celebrating right? Well nope, we can't celebrate now because deflation is the "enemy", inflation is "good" - and instead we should be targeting an economy where the bias is on grinding away past debt because it makes it easier for those in debt to repay their debts. Think about it, isn't inflation a bit of a ponzi? That we need it in order to make past debt dwindle in significance and that if we don't have it (inflation), we're somehow going down a very bad path? Inflation is regressive taxation meant to punish savers and reward debtors - and guess who's one of the biggest debtors out there?
Bingo. It is a ponzi scheme. Inflation is also like being able to continuously get a new credit card with a higher credit limit in order to pay off the old card and continue playing the game. Not sure why more people don't realize this.
People don't realize that when guy in China is making 2 bucks a day to make computers whereas in USA it be $300 a day for guy to make same computers, we are losing out. Guess who owns so much of our debt? And we did it to ourselfs. Our government is in huge bind, have to keep interest rates low or we simple will have to print more money to pay interest on our debt. More money going into the system will cause inflation at some point and we will turn into Chile some years ago and country will go bankrupt, and so will the world, you can count on World War 3. We allowed illegals to come into our country to pick veggies from the farms thinking it be so much less money, California is near or should be bankrupt from this cheap labor and all illegals have learned the system on getting free money. Instead of illegals, we have a very decent work force that will work for 15 cents an hour, they are called prisoners, chain them up and put them out to pick crops, give them a reason of not doing bad again and be picking crops for 15 years. We could have the cleanest country in the world, but we just waste money in so many ways.
no kidding, the worst President in the history of the United States should have just told the South, "You keep your slave labor. We will pay a decent wage. See you in a hundred years." (although admittedly not anywhere near as eloquent and inspiring as the Gettysburg Address)
I think part of it is more efficient use of technology and logistics. The other part is that services are a much bigger share of the overall economy vs manufacturing. My bet is that inflation is set to rise, substantially. We are just now seeing the other shoe drop...demands for higher wages and co.'s giving in to those demands. https://www.google.com/webhp?source...e=UTF-8#q=Companies+announcing+wage+increases
I never buy new cars or trucks, let rental car agencies eat the first year depreciation and they only keep them up to eighteen months. They keep good maintenance on them and you get a better deal.