The Lighter Side Of Prices

October 30, 2013 in Daily Bulletin

Inflation is generally thought of as an evil phenomenon that eats away at the purchasing power of our earnings. Not so writes Steve Hargreaves:

  • If the price of something goes up slower than the rate of inflation then its relative price has fallen. Since incomes generally rise along with inflation that means that the goods have become cheaper – even if people pay more for them.
  • Thus the relative price of milk, television, and toys have actually fallen – even though we may be paying more for them in dollar terms.
  • It’s also important to take into account advances in technology. The rise of the smartphone may make it seem like phones have gotten more expensive in recent years. However the flip-phones that used to cost hundreds of dollars in the 90s can now be bought online for pennies.
  • Thus prices have fallen – even though we may pay more for the phones we purchase today.
  • Falling prices aren’t just a result of China’s manufacturing boom. Better supply chain management and automation have led to a revolution similar to the one that agriculture went through last century which improved farm productivity.
  • That’s not to say the price for everything has fallen. The price of services – from college tuition to medical care – has risen substantially. This is in part because it’s difficult to automate things like a college class or surgery.

The full article talks about other items that have become relatively cheaper and more expensive over time, those who believe that the prices of services will also fall, and more. Read it here.

Source: CNN Money