Markets at work: many consumer items’ prices have dropped significantly since 2015
While the cost-of-living-crisis is certainly a concern, I thought it would be useful to look at the other side of the coin: consumer items whose prices have in fact dropped significantly in the last few years. As I have pointed out previously, a key cause of low inflation up till now seems to have been not just lower price increases but some prices continually falling.
Since some of these price falls seemed quite dramatic, I thought it would be interesting to see which items in particular had become cheaper. There are a multitude of challenges in measuring price changes over time, such as how to account for changing quality of items such as electronics. However, for the purposes of this article, I’m going to take ONS’s figures at face value.
The chart above shows the items in the consumer price index basket that experienced the biggest price falls between December 2015 and January 2022. [The left panel is the top 1–10, right is the top 11–20.]
The items that reduced in price are a bit of a mix, but here are a few patterns that seem to pop out. As you would expect, the price of all kinds of electronics and associated items — such as software — has come down significantly during this period. Global competition and innovation have been driving down the cost (and hence price) of these items for a while now.
I’m not entirely sure what is going on with “fees and charges” which also feature in this list (and would love someone’s comments/explanation) — maybe there’s competitive pressure to reduce these due to rapid digitalisation of various financial and other services. Several food items also show up.
Zooming out a bit, there’s also a story here about imports. The colour coding of the bars indicates that the majority of these items with lower prices were also items that the UK tends to import regularly. Indeed, none of them are in the lowest import-intensity category of 0–10%. A separate analysis I did shows a statistically significant relationship between high import intensity and low price increases over the 2015–2022 period [p=.02].
Say what you will about the downsides of globalisation; one of the upsides surely is lower prices (than would otherwise been the case) for households and consumers.