Inflation explained: Cheaper consumer electronics an outlier among industries

Inflation explained: Cheaper consumer electronics an outlier among industries

Editor’s note: This is the fifth story in an occasional series on the causes and impact of inflation.

It has been a while since televisions were a real money maker, at least for small businesses.

Just ask Henry Yasczak, a semi-retired appliance seller and repairman. He still operates Henry’s, formerly Henry’s TV and Appliance, in East Vandergrift three times a week, but refuses to tinker with the tube anymore.

“Everybody that I knew repaired them has quit because there’s no profit in them anymore, with the costs of TVs being so low and the cost of labor being so high,” Yasczak said.

And for retailers, he added, “It got to a point where you’d sell a TV and make $20 and then people wanted you to install and hook it up.”

Indeed, televisions and most other consumer electronics tend to cheapen with time, a trend only briefly interrupted by a pandemic-era inflationary spiral that left a more permanent mark on sectors like groceries, food service and insurance.

Consumer Price Index readings from August show 2% and 6% decreases in computer and television costs, respectively. The data, compiled by the Bureau of Labor Statistics, also reflects average smartphone prices have dropped by about 9% since the same time last year.

Economists and finance experts say constant innovation in consumer electronics, accompanied by intense competition and buyer behavior, tends to drive down prices — or at least stave off inflation.

“Generally, we expect prices as a whole to rise at a moderate level as a result of economic growth,” said Elizabeth Renter, a data analyst at personal finance research firm NerdWallet. “Electronics are unique. Where technology is concerned, we expect the prices of things to decrease as the technology ages.”

Measuring quality

The Consumer Price Index accounts for changes in quality in addition to price. For example, if a new smartphone has a better camera than last year’s model, but costs the same, smartphones will appear to be getting cheaper.

And once a manufacturer releases a new model, retailers usually move to slash prices on old iterations, according to Shawn DuBravac, president of consulting firm the Avrio Institute and former chief economist for the Consumer Technology Association.

“As the new technology comes out, it makes earlier technology less attractive and therefore you see it at a lower price,” he said. “You’re not only competing against all of your peers, you are also competing against your last product.”

With a little patience, buyers on a budget can get top-notch technology for bargain prices, Renter advised.

“Technology that is a few years old will be more affordable,” she said. “And technological improvements at this point are more about fine-tuning than they are about truly disruptive innovations.“

Semiconductors

From 2020 to 2023, manufacturers struggled with a global shortage of microchips, a small piece of circuitry that acts as the brains of electronic devices.

These components, also known as semiconductors, are vital to smartphones and computers, but also medical machines, appliances, vehicles and countless other electronic systems.

“Part of what happened during the pandemic was companies saw a recession occurring, so they slowed production, and then it turned out that as people were locked up in their house, they actually wanted new televisions, new computers for work, new computers for school, so you had demand growth,” DuBravac said.

Western Pennsylvania is home to four semiconductor plants, including one in Saxonburg and another in Youngwood.

Saxonburg-based chipmaker Coherent declined to comment on its production costs and capacities. Powerex, with a semiconductor plant in Youngwood, as well as its joint owners, Mitsubishi Electric and General Electric, did not return requests for comment.

The chip supply cut combined with cooped-up consumers boosted prices for computers and, in particular, televisions, which hit an inflation rate of 13.3% in August 2021. Within a few months, prices were falling again.

As Renter noted, “A shortage in the supply chain for important components may cause a temporary spike in inflation at the item level, but by and large, electronics will get more affordable with time.”

Tom Pietropola, owner of Laketon TV and Appliance Sales and Service in Penn Hills, is part of a large buying group, which insulates him from shortages and helps keep his prices stable. He did, however, see higher demand for televisions once covid hit.

“Definitely, you saw a spike in that,” he said. “They were in their home, you know? No vacations or anything like that going on, so they put their money toward entertainment in the house.”

Price outlook

There are several reasons experts believe prices for consumer electronics will continue to fall, including the CHIPS and Science Act. Passed in 2022, the bill set aside $53 billion in federal subsidies to support chip manufacturing.

It came in response to supply chain disruptions and lagging U.S. competitiveness in an industry where Taiwan, China and other East Asian countries have made significant leaps.

Nearly all of the money has been allocated, with the last few billions targeting smaller operations up and down the supply chain. These awards also have prompted more than $300 billion in investment pledges from private companies.

Nonetheless, DuBravac doesn’t expect the legislation to have too large an impact on prices, since glass-making, advanced microchip packaging and other steps in building electronics mostly occur overseas.

He did offer some positive news for consumers. As computer technology becomes more integral to goods like cars and appliances, he said their price points may start to behave more like consumer electronics — that is, they’ll go down.

“In electronics, what you tend to see is a component gets cheaper, that price decline goes all the way to the supply chain to the end user,” he said. “I think this could help a lot of other categories.”

Jack Troy is a TribLive reporter covering the Freeport Area and Kiski Area school districts and their communities. He also reports on Penn Hills municipal affairs. A Pittsburgh native, he joined the Trib in January 2024 after graduating from the University of Pittsburgh. He can be reached at [email protected].

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