Smartphones defy soaring inflation and keep getting relatively cheaper

US inflation soars Nearing 40-year highs, prices for food, fuel, and pretty much everything seem to be rising every month.

Smartphones may be an exception.

For example, Apple recently announced new versions of its iPhone and other gadgets. many heads turned When I said I wouldn’t charge more, even though the device was expensive to manufacture.

because this is incomprehensible Firms usually raise prices enough to keep up with inflation, or at least to cover the increased cost of manufacturing the product.

Consumer price data tell a more complicated story.Latest Consumer Price Index data suggests Smartphone prices are really falling The index, released on September 13, 2022, showed a 20.4% decline in August from a year earlier. This is the largest decline among the detailed spending items tracked by the Bureau of Labor Statistics, and contrasts with the overall 8.3% rise in prices.

what happened?

As economist teach business school student, I enjoy exploring and explaining these economic puzzles. There are two basic explanations. One is about data and the other is about Apple.

Why smartphone consumer prices have fallen

The story behind the consumer price index data can easily be explained with a little technical explanation.

A 20% decline over the past year is not uncommon for smartphones. In fact, according to the index, most of the time it’s going down from month to month. Since the end of 2019, smartphone prices have fallen by a whopping 40%.

And while smartphones show the biggest drop in the index, a broader range of tech gadgets, from computers to smartwatches, also tend to decline over time. , according to a government announcement Information technology commodities fall 8.8%.

Part of the reason for their steady decline is Bureau of Labor Statistics websiteThe consumer price index is constant quality of goods and services in the economy. This means trying to track price changes for the exact same set of goods and services each month. You’re comparing the price today with the price of the exact same thing a month or a year ago.

For most commodities, this is not really an issue as the quality does not change significantly over a relatively short period of time. For example, the apple you nibbled on today is almost the same as the apple you ate a year ago.

Smartphones and other technology-driven gadgets are different.because it’s a smartphone constantly improving quality – Latest update for iPhone or Samsung Galaxy I waited out of breath Year after year, it becomes more difficult to compare prices for products of exactly the same quality.

For items that improve rapidly, the Bureau of Labor StatisticsHedonic regression model” to estimate changes in these qualities over time. The pleasure model measures the same amount of satisfaction. It may sound complicated, but the goal is simple. It’s about figuring out how much the price will change with each new smartphone feature.

As a consumer, you’re basically doing this every time you decide if it’s worth paying extra for it. Better camera or extended battery life when buying a new phone.

So a 20.4% price drop doesn’t mean new smartphone prices will go down. However, it suggests 20% more cost-effectiveness compared to the same mobile phone a year ago. worth it or not is another question.

Why Apple Holds Prices

This explains why Apple didn’t change prices, even as iPhone quality improved and supply chain costs increased.

Beyond quality issues, one of the main ways supply chain issues affect phones is shortage of computer chipsIf there is a product that relies on computer chips, it is the smartphone. As a result of the shortage Delays in production of cars and trucks When and many other consumer goods.

Shortages have also pushed up the price of semiconductor components. The US government producer price index is Semiconductor parts such as chips and wafers Since the start of the COVID-19 pandemic in 2020, there has been a steady increase after several years of decline.chip price Likely to rise by 20% next year.

For these and other reasons, analysts expected Apple to raise prices.

Instead, Apple released its latest iPhone model at the same price as the last two models. iPhone 14 $799 $999 for the Pro version. Keeping prices constant during periods of inflation means iPhones are relatively cheap.

So why isn’t Apple raising prices? Is it just being nice to the customers who fuel it? huge profit for the company last 10 years?

Probably not.with 40%+ gross margin This means that we exceed the cost of producing all our products and services. Apple can probably afford to absorb the rising cost of chips and other components.

My guess is that the smartphone market is pretty competitive, so Apple is keeping prices the same to increase its market share in the US. Exceeding the recent record 50% – So the iPhone remains One of the best-selling smartphones.

So it’s good to know that while almost everything we buy is going up in price, at least one item is getting better over time and won’t succumb to the price spiral of inflation. can give you some peace of mind.

Jay Zagorsky is a Clinical Associate Professor at Boston University.

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