Despite soaring U.S. inflation, some things are getting cheaper
Americans are getting walloped by higher inflation. A recent estimate by economists at the University of Pennsylvania's Wharton Business School found that the average household must spend $3,500 more in order to buy the same amount of goods and services they did in 2000. But despite inflation hitting a 40-year high in January, a handful of items have actually gotten cheaper over the last year.
Prices dropped for more than a dozen goods and services from January 2021 to January 2022, according to government data released on Thursday. That includes books, smartphones and other items, such as:
- Girls apparel: -4.3%
- Ship fare: -2.1%
- Cosmetics: -1.7%
- Tenants and household insurance: -1.7%
- Men's pants and shorts: -0.8%
To be sure, such purchases don't offset the sharply higher prices that Americans are paying for groceries, gasoline, rent and other staples. But they offer insight into the quirks of an economy in which rising demand from consumers, exacerbated by a strangled supply chain, is pushing up prices for everything from meat to bicycles.
Inflation's continual "ebb and flow"
"What we're seeing is that the inflation rates tend to ebb and flow with the state of the virus," said Adam Shapiro, an economist at the Federal Reserve Bank of San Francisco. "When the pandemic first hit, we saw a very sharp decrease in inflation" as people stayed home and cut back on spending.
That's no longer the case. And with continuing supply-chain issues causing shortages of computer chips, auto parts and other products, inflation is unlikely to go away any time soon, according to economists.
"There is a strong risk that these supply constraints and bottlenecks could persist and that will push up inflation," Shapiro said.
So why are some items declining in price while everything else is rising? There may be two reasons, economists and industry experts said. First, production and marketing peculiarities within some industries may have caused pricing to remain stable or even fall.
Second, the price tag of some tech products has stayed level even as the devices saw gains in processing power, giving consumers more features. That added product value is something the Labor Department takes into account when tracking inflation through its Consumer Price Index. In other words, consumers are getting more for their money, which for economists is equivalent to a decline in price.
Pricing books by their covers
Avid readers will be pleased to learn that books are one item bucking inflationary pressures. Through January, retail book prices sank 1.2% over the last year, government data shows.
Kristen McLean, a books analyst at market research firm NPD Group, said she suspects the BLS data shows a decline in book prices because the agency might have collected more data from online sites due to some stores shutting in early 2021 as COVD-19 flared. Online bookstores discount books more than physical stores.
A shift to online books, which typically are cheaper than printed books, as well as some stores being closed during the pandemic, could have caused the dip in book prices, agreed Steve Reed, an economist with the Bureau of Labor Statistics. The long-term trend for book prices is flat, he added.
But McLean's data shows that book prices remained steady, partly due to a quirk that is specific to the bookselling market. Because book prices are printed on covers, retailers can't increase the price of an already-printed item.
"Those costs weren't really passed onto consumers because we were working with old stock in 2021," McLean noted.
But book prices are likely to jump in 2022 as publishers bring out new titles and reprint older books, which allows them to issue copies with higher prices on the covers, McLean said. She's not sure how much book prices will increase, but noted that shipping costs have become "extreme" and that some publishers are struggling to find paper.
"Publishers are trying to figure out right now what is the tolerance" for higher prices among consumers, McLean said.
Better and cheaper tech
Smartphone prices have declined more than 13% over the last year. Meanwhile, the price of software has declined 2%, while audio equipment has slipped 1.2%.
That's part of a long-term trend in durable goods — defined as consumer products that don't need to be purchased often — declining in price due to technological advancements. Think back to television sets when the technology first emerged in the 1950s. Early TV sets were luxury items, with only a few households able to afford them.
But the cost of TVs and many other tech products have plunged in recent years, partly due to an increase in features. That means consumers are getting more for the same price. (This chart from the BLS shows that while all items increased 47% in price from 1997 to 2015, TV sets slumped 94%.)
Another category that has seen a major price dip over the past year: School meals, where costs have tumbled almost 60% since January 2021. That decrease stems from the federal government's push to provide free meals for K-12 students, which has lowered the cost for parents, Reed said. By contrast, the price of food away from home. such as at restaurants and cafes, has increased 6.4% in the last year.