The widely monitored consumer price index keeps showing headline inflation in the United States hovering around mid-1980s levels.
In the most recent reading, prices for a wide range of goods and services, including food, airfare, and gasoline, rose. According to the Bureau of Labor Statistics, which publishes the CPI, headline inflation was up 8.2% over the previous year. However, one product category tracked by the CPI experienced a 22% drop, indicating deflation: smartphones.
That may appear to be counterintuitive. Most phones are highly-priced, and the best ones aren’t getting any cheaper. Apple launched new iPhones in September, for example, at the same prices as last year’s models in the United States. This year, Samsung’s high-end devices can cost up to $1,800. Smartphone average selling prices continue to rise in markets around the world.
Smartphones, it turns out, aren’t getting any cheaper. They are improving. As a result, the CPI shows them deflating rather than inflating like many other goods.
Why? Normally, the CPI contains compares prices for identical items whose prices do not vary significantly from year to year. As an example, it could compare eggs to eggs. However, in the case of smartphones, the statistics bureau must account for devices that improve year after year. If smartphones improve while prices remain stable, the bureau records a fall in prices.
“There has been a lot of drops in the smartphone index.” “And that’s just dealing with quality improvements,” said Jonathan Church, a bureau economist. The bureau examines new smartphone models twice a year to see how they’ve improved — whether they have better cameras, displays, or other new features.
The bureau makes use of data from a third-party dataset that contains smartphone specifications. Smartphones may eventually mature into the type of product that will see price hikes and inflation.