These Are Products that Defy Inflation

NEW YORK (MainStreet)—Every year we see prices go up on just about everything, and with the pace of U.S. consumer price inflation increasing in July, the annual inflate rate jumped to 2%. But some things have bucked the trend, with sticker prices rising slower than other goods or even declining over time.

There are a lot of factors behind trends in pricing, many unique to a particular market or segment Those unique factors have caused prices to stay pretty flat in a few niches of the market, which has been a benefit for consumers struggling with other costs. Here are five categories of goods that have defied inflation for the past few years--and it's our sense of whether that trend will continue.

Music

Remember the '90s, when the newest CD cost over $20? Those days are probably never going to come back.

Instead, music is probably going to get cheaper and cheaper, according to Zac Johnson, product manager for Allmusic.com. "As technology makes music more accessible, I could see the trend of music getting cheaper and cheaper both to produce and to make," Johnson says, noting that this trend has been underway for years. With singles rarely going for more than $1.29 and albums costing between $9.99 and $12.99 on iTunes, music is cheaper than ever, especially if you compare it to the rising cost of other goods.

Technology has made it much cheaper to produce and distribute music, which has kept the price for music low throughout the aughts, but Johnson thinks that we could see music get even cheaper and near free in the future. "You could see more bands releasing new albums as a kind of loss leader to create buzz," Johnson said. "Then they can use that buzz to sell concert tickets and T-shirts."

That means we'll see more bands following in the footsteps of Jay-Z, whose partnership with Samsung guaranteed that his new album would sell a million copies even before it was released.

"In the future, selling the album isn't going to be that important anymore--instead, artists will look to get their music out there through marketing," Johnson notes.

Reading

Just as with music, books, newspapers, and magazines have seen their business model challenged by technological innovations. As a result, the cost of reading material has plummeted relative to the rate of inflation.

The reason behind this trend is obvious: more and more reading material is available for free online. With limited time in the day, there's just less time for people to pay to read books, magazines and newspapers. Since internet consumption has exploded, newspaper and magazine subscriptions have plummeted, while fewer and fewer authors are finding their books become bestsellers. Even the standard of what qualifies as a "bestseller" has gone down, with fewer and fewer books selling more than 10,000 copies--and, increasingly, much fewer.

The lower demand for paid reading material has forced newspapers to experiment with lower cost subscription models. In April, the New York Times announced its intention to offer low-cost subscription alternatives in a desperate attempt to get eyeballs. Meanwhile, the explosion of e-readers and self-published books on Amazon means it's easy to get e-books for free or well below $10. That's a far cry from 20 years ago, when hardcovers retailed for $14.95 plus tax.

Eating Out

Since 2008, more and more consumers have noticed that supermarkets are getting more expensive. Greater demand, a more globalized marketplace and especially the cost of fuel have made food prices rise, and supermarkets have been passing those costs on to the shopper. But the rising cost of unprepared food has actually made eating out appear more affordable than in the past. This is because the difference between eating out and eating at home is getting smaller. "When commodity prices rise, this affects supermarket prices because the share of commodity price in their total costs is much higher than for restaurants," says Ricky Volpe, an economist with the USDA Economic Research Service. "For restaurants, the cost of the actual food is a smaller portion of their total costs, since they have higher labor costs, marketing costs, and so on."

This means large chain restaurants have been able to cut other costs--hiring fewer workers or slashing marketing budgets--which allows them to offset the rising cost of commodities. "Supermarkets have less wiggle room," Volpe notes.

For the consumer, this means getting a pizza at Pizza Hut is less expensive when compared to making a pizza at home. But the rise in commodity prices is a bigger problem for smaller, independent restaurants, who typically spend less on marketing and have smaller profit margins. "We could see prices at smaller independent restaurants go up considerably and possibly even forced out of the market," Volpe says. "We haven't seen that yet, but it could happen."

Computers and Cell Phones

Anyone who has bought a computer in the past 20 years knows one thing: this year's model is always cheaper and better than last year's model. For the unluckiest out there, buying today means you'll spend more for an antiquated machine than if you waited just a day or two. The timing of electronics purchases has gotten so complicated that there are web guides advising when to buy a new Mac.

Cell phones have also gotten a lot cheaper as they've gotten more powerful. Just five years ago, a full touchscreen and Web connectivity was rare on a phone--and expensive. But prices have been kept low, thanks to carrier subsidies and longer contracts. More competition in the marketplace means prices are unlikely to go up in the future, says Jordan Greene, head of mobile at Mella Media. "Innovation requires timing to be important, and ultimately must be valuable to the consumer," Greene says. "Even with a constant flow of new phones debuting, the price that consumers pay will not vary that much because the carriers need to keep phones below a price point that consumers are comfortable with."

Technological innovations will keep the cost of producing phones and computers down, and competition between carriers, phone makers, and mobile phone OS producers are sure to keep costs down for the individual consumer for some time to come. ""We just need to wait for the next big innovation to come along and change the whole structure of the market, again," Greene says.

--Written by Michael Foster for MainStreet

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