Why smartphones are getting cheaper in the CPI

Closely watched consumer price index continues to show US headline inflation holding steady Last seen in the mid-1980s.

Prices for various goods and services, including food, airfare and gasoline, rose in the latest figures released last week. Headline inflation rose 8.2% on his 12-month basis, according to the Bureau of Labor Statistics, which publishes the consumer price index.

However, one product category monitored by CPI Record 22% Plungeindicating deflation: smartphones.

It may seem counterintuitive. Most phones are expensive, and the best phones don’t go down in price. Apple announced his new iPhone in September. same US price For example, as last year’s option.And Samsung’s high-end devices are priced at $1,800 this year. Average selling price of smartphones keep climbing in markets around the world.

After all, smartphones have not gotten cheaper. they are getting better As such, the CPI shows a contraction rather than an expansion like many other commodities.

Here’s why: CPI typically includes price comparisons for identical items whose prices do not vary significantly from year to year. For example, you might compare eggs to eggs. But in the case of smartphones, statistics bureaus have to manage devices that get better every year. If smartphones improve and prices stay the same, the station will record a price drop.

“There have been a lot of declines so far. [smartphone] index. And it’s really just largely addressing quality improvements,” said the agency’s economist Jonathan Church.

Twice a year, the agency surveys new smartphone models and measures how they have improved. Whether the camera, display or other new features are better.

“For smartphones, we’re talking screen size, RAM, processor speed, the phone’s camera or rear camera, whether it’s foldable or something like that.

The station then makes a “quality adjustment”. If the price of a new iPhone didn’t go up, but the phone has new features, the CPI will determine that the device is worth more than the old one, and we assume consumers will get more value for the same amount of money. .

Estimating the size of the quality adjustment is done with a hedonic modeling approach, where stations use data from third-party datasets including smartphone specifications.

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

The agency indexed smartphone technology to a starting point in the second half of 2019. Apple’s latest device was the iPhone 11 and Samsung’s best device was the Galaxy S10. It has been declining year after year.

Church said that smartphones could eventually mature and become the kind of product that sees price increases and inflation. But the rate of improvement should slow down.

“It’s really only at a certain mature point in the cycle that their prices start to rise again,” Church said. ”