If you’re looking to buy a new smartphone, chances are it won’t break the bank. In fact, it might be cheap enough to almost seem free! However, there’s more to why this technology is getting cheaper than you may realize—and it all comes down to an agreement that was made between the US government and cell phone companies over the past few years.
According to the carefully monitored consumer price index, headline inflation in the United States is still clinging to levels last seen in the middle of the 1980s.
In the most recent reading, which was published last week, prices increased for a wide range of goods and services, including food, travel, and fuel. According to the Bureau of Labor Statistics, which produces the CPI, headline inflation increased by 8.2% during a 12-month period.
However, one CPI-tracked product category—smartphones—saw a 22% decline, indicating deflation.
It may seem paradoxical to say that. The majority of phones are pricey, and the finest ones aren’t getting any cheaper. For instance, Apple announced new iPhones in September at the same U.S. pricing as the models from the previous year. Additionally, this year’s high-end Samsung products might cost up to $1,800. In markets all across the world, smartphone average selling prices are still rising.
It seems that cellphones aren’t becoming more affordable. They are improving. And as a result, the CPI indicates that they are deflating rather than increasing like many other items.
Here’s why: Typically, the CPI includes price comparisons for similar goods whose costs don’t fluctuate significantly from year to year. As a result, it may, for instance, compare eggs to eggs. Smartphones, however, require the statistics office to account for technologies that improve year. The bureau registers a price reduction if cellphones are getting better while remaining the same price.
“The [smartphone] index has experienced many falls. And the majority of it actually really has to do with quality improvements, according to Jonathan Church, an economist at the agency.
The bureau examines new smartphone models twice a year to assess how they’ve changed, including if they have better cameras, screens, or other new functions.
When discussing cellphones, Church said, “we’re talking about stuff like screen size, RAM, processing speed, phone camera or rear camera, whether it’s foldable, and things like that.
If the new iPhone’s price didn’t change but it has additional features, the CPI judges that gadget to be more valuable than the previous one and it estimates customers get greater value for the same money. The bureau then makes a “quality adjustment.”
Using a hedonic modelling technique, the bureau estimates the extent of the quality modifications using information from a third-party dataset that includes smartphone specifications.
Or, in the words of the bureau: “If a replacement smartphone differs from its predecessor and the value of the difference in quality can be correctly calculated, a quality adjustment can be made to the price of the prior item to include the estimated value of the difference in quality.”
The Bureau of Labor Statistics has indexed smartphone technology to a beginning point in late 2019, when Samsung’s Galaxy S10 was the greatest smartphone and Apple’s newest gadget was the iPhone 11. In reality, the CPI shows that the cost of smartphones has been declining since 2019.
Smartphones may eventually develop into the sort of product that experiences price hikes and inflation, according to Church. However, the pace of development would need to slow down.
Their price won’t truly start to increase again until the cycle reaches a particular stage of maturity, according to Church. In terms of the lifespan of cellphones in general, it seems quite early.