CD Player Dropped From Inflation Data, Phonograph Next?:
In the UK, the Office of National Statistics has decided to remove the personal CD player from the basket of goods which make up the RPI, the equivalent of our CPI, a measure of inflation. Nobody buys them anymore, the thinking goes, so the more popular and expensive mp3 player has replaced it. In the US, the Bureau of Labor Statistics, often make similar decisions. But does this make sense? Measures of inflation, when placed against wage measures, are supposed to indicate whether consumers are getting ahead. If prices go up, while wages stagnate, then that’s a sign of trouble. Now, the reason that consumers buy mp3 players, and not CD players, is that they’re better quality and a better deal. Or, put another way, consumers could still buy a high-quality CD player, and save a lot of cash for later. Either way they benefit. But, inflation data doesn’t reflect this, it only notes that mp3 players are more expensive and thus the basket of consumer goods doesn’t seem to go down in price. It seems that intellectual property isn’t the only area in which the government has failed to adapt to new technology. Economic measurements need to show that consumers benefit from the rapid obsolescence and constant price deflation that marks the high-tech world.
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Well the consumers who do buy personal CD players now pay $10. I saw one at Wal Mart the other day for $9.95. I didn’t buy it because I was after the $24.95 DVD player. Well actually I didn’t buy it because I got one for free recently with my noise cancelling headphones.
What does that do to your inflation statistics? How much does a basket of goods cost? How long is a piece of string?
LOL, all good points Dan!
Another skew to this inherently flawed “measurement” is that the mp3 player is a relatively new technology, so it can be expected that the price will dramatically decline in the next few years. The result will be a slower rise in the CPI than if they stuck with CD players, since the CD player can’t even get that much cheaper since they already cost 1/100th of what they did 20 years ago.
Plowman makes a very good point. CD players have reached a point at which further declines in price are likely to be of smaller and smaller magnitudes. MP3 players will give more bang for the “deflationary” pound.
Don’t they correct for this? That is, they don’t *retroactively* drop CD players from the basket — they drop it in advance for next year.
That is, suppose CD players go from $30 to $20 to $10, and MP3 players go from $300 to $200 to $100. This year, the CPI is adjusted based on a drop from $30 to $20. Now they announce that next year’s will be based on MP3 players. So next year the CPI includes a drop from $200 to $100.
So the method is correct, and the fact that MP3 players are more expensive does not in itself lead to a misstatement of CPI.
My example assumes that the rate of price drop is the same, but plowman is correct that MP3 players will drop faster than CD players, so that the CPI will rise more slowly the new way than the old way.
In summary, I think the new method (a) is correct to switch from products less used to products more used, and that (b) it does not at all lead to a misstatement of CPI.
The whole CPI is silly. The folks who compute the value extract food and energy to compute the “core”, what is more core than food? It just makes politicians look bad to include things that rise quickly with inflation. And what about government? That is increasing rapidly as well. But as I said before, it makes the politicians look bad.
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