Finally, inflation seems to be under control. The consumer price index for December dropped by 0.1% from November, which was the largest dip since April 2020. Inflation rose year over year by 6.5% – the lowest since October 2021. That figure is well down from the 8% pace in earlier months of 2022. Many items, including many food items, continue to rise in price, but the price of smartphones is falling.
As is often the case, one or two major consumer spending items made a larger difference. The Bureau of Labor Statistics noted in the CPI report, “The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes.” Both gas and oil prices have been falling since July. (See also, how fast food prices rose and fell in 2022.)
Currently, not many items in the CPI are moving down in price, but due to the drop in rate of inflation, the number of these should increase in upcoming months. 24/7 Wall St. reviewed the BLS’ Consumer Price Index Summary December report to find the items that have declined in price in December 2022 compared to December 2021. The list has lengthened to 17 items.
For several months, the items with the largest drops in price year over year have been consumer electronics. Smartphone prices, especially, dropped 22% in December. Some TVs and calculators were down 18%. This may seem at odds with prices consumers pay. The prices of new model smartphones certainly remain high. So what does the CPI drop for smartphones mean?
The CPI generally compares similar items, eggs to eggs for example. Smartphones, however, keep improving, and the newest models are often better versions of the previous year’s models. To reflect the technology improvements (better screen resolution for example), the BLS implements quality adjustments, discounting previous models to reflect their lower value. The drop in the CPI for smartphones, therefore, does not necessarily suggest that prices of smartphones are 23% lower but that the new smartphones provide 23% more value.
Overall, the CPI data is good news. There remain, however, worries about a deepening recession because inflation has reduced the purchasing power of consumers. Inflation had also caused the Federal Reserve to raise rates, which, in turn, raised mortgage rates and the cost of car loans. This will likely put pressure on both markets. (These are the 15 cars that hold value the longest.)
For now, the CPI is dropping, which is good news for almost everyone.
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