I recently heard (can’t recall where) a great characterization of today’s inflation: “high frequency items are going up in price while low frequency items are going down.”
Things we buy every day – energy and food – are going up in price. Things we buy less frequently – washing machines, electronics and housing – are going down in price.
I think this phenomenon is helping to understate inflation as measured by the CPI. Or, at the least, it does not reflect the pain people are feeling as a result of the current economic environment. It’s true that housing has gotten considerably cheaper (called Owners’ Equivalent Rent in the CPI). But a large segment of the population is stuck in a house they purchased at the top of the market. For these people, housing hasn’t become any cheaper. Also, most people are not benefitting from a cheaper washing machine or ipod because they can’t afford it anyway – they’re too broke from buying food and gas.
A possible reason why low frequency items are going down in price: prices are being slashed to move inventory. This is exactly what happened to Sears this past quarter.
The Laundromat in my building has raised prices substantially:
Medium Size Wash: was $3; now $3.25 – 8% increase
Dryer: was $.25 for 8 minutes; now $.25 for 6 minutes – 25% increase