CD Player Dropped From Inflation Data, Phonograph Next?

from the neverending-treadmill dept

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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  1. identicon
    Dani, 20 Mar 2006 @ 9:08am

    Re: I don't get inflation period?

    "I mean, lets say we drop inflation, and everything is fixed in price as is today. Why should the fact that people get raises and pay increases cause the price of products to increase? Doesn't this mean that people will just buy more products thus making the companies selling these products richer?"

    It's not that simple...first, there's supply and demand. As we make more money, we are willing to spend more money. If a business sees that people are willing to pay more, why wouldn't they raise prices?

    Businesses are just like people as well. If your business is spending more (ie pay raises), the business must be making more to compensate or the owner is losing money. Sometimes this means a price increase.

    Think about it...if you make product z and then sell it to retailer for $5, who then sells to consumer for $10. If you give your employee a raise of $1 per z made, you have to raise your price to $6 or you make less money. The retailer then will raise their price as well, as long as the consumer's buying habits of product z stays the same at the higher price.

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