My Perspective on the Murk of Official Retail-Sales Inflation, with Some Surprising Illustrations

My couch, jeans, car, PC, sheets, and phone weigh in on globalization and the internet.

Retail sales, not including sales at restaurants and bars, in May rose 3.1% from a year earlier, according to the Commerce Department this morning. That’s not exactly spectacular growth, but it’s OK-ish. Since 2013, year-over-year retail sales growth has ranged between 1.0% and 6.5%. But how is retail-sales growth doing if adjusted for inflation? And suddenly, we descend to the murky spot where my life intersects the data.

Inflation as measured by the Consumer Price Index (CPI) rose 1.8% in May, compared to a year ago. So, just take retail-sales growth and subtract CPI growth – like 3.1% minus 1.8% — to get “real” (inflation adjusted) retail-sales growth? Nope. And here is why.

Retail sales are sales of goods, such as cars, food, appliances, clothes, jewelry, tools, home furnishings, electronics, and the like. Retail sales do not include sales of services.

But services are the biggies. They include healthcare, financial services such as paying your financial advisor or bank fees, rent, getting your hair cut, education, insurance, the electricity bill, the phone bill, video gaming, movies, streaming anything, cloud services, etc. Services account for 69% of consumer spending (here’s my breakdown of current consumer income and spending).

Goods account for the other 31% of consumer spending. This spending in goods falls into two categories, durable goods (at least you hope), such as cars, tools, and jewelry (33% of goods sales) and nondurable goods such as gasoline, food, and clothing (67% of goods sales).

The thing is: All have very – and I mean stunningly – different rates of inflation.

Inflation in services is hot and persistent.

Healthcare, insurance, education: Everyone knows, inflation is red hot in these service sectors. Other services see less inflation.

The CPI for services for all urban consumers increased between 2.0% and 3.2% year-over-year over the past six years. In the decade before the Financial Crisis, CPI for services increased year-over-year in the range between 3.5% and 4.5%.

The chart shows 20 years of the services CPI as index, rather than percent change. It went from 188 to 324. In other words, what $188 bought in 1999 would now cost $324. So with respect to services, the dollar has lost 42% of its purchasing power over the past 20 years:

Inflation in goods, illustrated.

In 1982, I bought my first new couch set (couch and love seat). After days of shopping, I ended up buying at Dillard’s. They had to order it. It took a couple of months to arrive. It was made in the US. Nice cloth. Good looking. I paid $1,200 for it, before sales tax. I remember it because it was a big chunk of money for me at the time, and when I wrote the check, thereby cleaning out my bank account, it was an existential experience.

Two years ago, “we” (having gotten married years earlier) bought the third couch set in my life, after spending an hour browsing on the internet and two minutes ordering it. The couch and love seat came three weeks later, “minor assembly required” (the legs … make sure you know how to use a power screwdriver). It was made overseas, gorgeous black leather, beautiful design. After two years of use, it shows no signs of wear and tear. We paid $1,081 for the set, sales tax not included. Shipping was free.

This is the thing about goods inflation: Globalization, the corporate search for cheap labor that we all complain about, efficiencies in the supply chain, manufacturing, and transportation, etc., and relentless global competition, including via the internet, have brought the cost of some goods down.

Then there is this: The kind of laptop you can buy today for $800 would have been a supercomputer in 1982 that would have cost many millions of dollars. The performance of electronics has constantly improved in leaps and bounds, and prices on a performance-basis have plunged.

I bought my first PC in 1984. It was made by TeleVideo, a California company that later died. It was based on the Intel 8088 chip, came with two floppy drives, no hard drive, and 640 kilobytes of RAM, the most available. I paid nearly $4,000 for it, funded by a three-year loan from my credit union. This thing turned into a boat anchor in no time.

Then there is this: The car you bought in 1982 likely had drum brakes in the rear, no antilock brakes, no airbags, etc. Power windows and locks or cruise control were options you had to pay for. It had no designed crumple zones, no side-impact door beams, etc. The six-cylinder engine was a dog. It had a three-speed automatic transmission. And after 100,000 miles of driving, the car had lost nearly all its value.

Now, our car is 13 years old, has 130,000 miles on it, looks great, runs perfectly, has required only minor maintenance, and has the safety and convenience features available in 2006. And it still has a book value of a few thousand bucks. Cars have advanced since 2006 in leaps and bounds, and have gotten more expensive, but you’re getting a lot more too, such as a silky-smooth eight-speed automatic transmission.

Auto manufacturing is one of the prime examples where automation, globalization of the entire supply chain, innovations in materials, manufacturing, and design, etc. have contributed to some amazing cost savings.

But the problem for the pocketbook is this: They’re not building the 1982 models anymore. They’re now building the 2020 models. And in terms of what you get, they’re not in the same ballpark.

These are examples of different versions of durable goods deflation.

Durable goods deflation is the norm in a modern globalized economy, where the internet makes comparison shopping a breeze, eliminates entire layers of middlemen, and where global competition forces manufacturers to improve the product while bringing down production costs or die (see TeleVideo).

Hence the incessant search for cheap labor, but also for innovation in materials and design, for efficiencies in automation, supply chains, transportation, etc. This has had the effect of reducing the costs of making and selling the goods, captured by the CPI for durable goods:

The above chart shows that overall, there has been mild deflation in durable goods for the past 20 years, with the dollar gaining about 22% in purchasing power, but not nearly enough to make up for the large amount of loss of purchasing power in services.

Nondurable goods are a mixed bag.

Gasoline, food, bed sheets, clothing, shoes, cosmetics, beer, etc. are non-durable goods. About two-thirds of retail sales are non-durable goods. There too is a constant strive for efficiencies and lower costs, as long as the sectors remain open to competition.

In 2017, we bought the best set of cotton sheets we’ve ever bought. We got it online, from the manufacturer in India via Amazon for $79.99 (4-piece, king), free shipping. The prior time we’d bought cotton sheets (also made in India) at the store, we’d paid about $250.

The internet and globalization have crushed prices of clothing, sheets, shoes, and the like. They have crushed old distribution channels, middlemen, and local retailers by going around them.

I just googled: 501 levi’s lowest prices. And this is what came up:

Then I switched browsers and used Bing to search for Levi’s 505, and I had to play Amazon against Macy’s to get the price down, and after a few searches, I got this:

$19.86 or $19.99 – as pictured – is about what I paid for a pair of Levi’s in college in the 1970s. But if I walk into a store here in San Francisco to buy a pair, if I can even find my size, I’m likely going to pay $49.95 or more. In this crazy world of variable pricing, where your browsing history determines what prices you’re offered, how do you even calculate inflation?

But this is precisely what crushed prices of clothing. And this is precisely why companies search for the lowest manufacturing costs, even if it involves child labor and lethal working conditions in Bangladesh. Outside of few brief flareups in the media, consumers don’t care enough about that. What they care about is price, and maybe quality. And companies are forced by competition to comply, because the lowest-cost producer (not necessarily lowest-price seller) survives.

Food and energy prices are volatile, driven by the highly volatile prices of oil and the equally volatile prices of agricultural commodities, dairy products, and meat. That is why “core inflation” strips out food and energy prices. But food and energy are large components of the CPI for non-durable goods.

And overall, as you’ve known all along, this index is heading up, but in a volatile manner, with many ups and downs. With regards to nondurable goods, the dollar lost 35% of its purchasing power since 1999:

Everyone has their own examples of goods whose prices fell or skyrocketed. And what is an improvement to some – such as a smartphone over a rotary-dial phone, or cars with driver-assist features, back-up cameras, internet connectivity, and 10-speed automatics – is a bane for others.

But we can no longer buy a new car that is the same as a 1982 model. It would be a lot cheaper today than it was back then, but it’s not available. By now, it’s hard to buy a car that is not connected to the internet; and in a few years, it will be impossible.

For me, that a piece of equipment spies on me for the benefit of the corporations behind it is not a benefit. On the contrary. But more and more, I’m forced to pay for it, whether I want to or not. I cannot get the functionality of a smartphone without being spied on. Soon, I cannot buy a new car that is not connected to the internet.

But all this is part of the calculations of inflation. It’s murky, full of examples and counter-examples, and contradictions, and theories. There are geographical differences. Gasoline is a lot more expensive in California than in Texas, but health insurance is cheaper (personal experience). Cars are priced similarly everywhere, but prices may be more negotiable in some areas. Rents can vary by a factor of three or four across the country, declining in some cities, and surging in others. And all this gets mixed into a single national average figure that makes no sense to anyone – but that so much depends on.

Ecommerce is an existential threat to Walmart, and it’s furiously trying to get on top of it, whatever the cost may be. Read...  Walmart’s Desperate $3.3 Billion Acquisition of Fails. But it Now Discloses its US Online Sales, and They’re Big

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  109 comments for “My Perspective on the Murk of Official Retail-Sales Inflation, with Some Surprising Illustrations

  1. Petunia says:

    They have a name for what you are describing, hedonic price adjustment. I only recently learned this is what they call it when adjusting the CPI for changes in price and quality over time.

  2. Paul says:

    I can remember when a friend paid about $12,000 for a leather couch, about 1982.
    I think it was from Italy.
    About 2012, I paid $1200 for a three piece leather living-room set here in Thailand.
    Still in use, fantastic quality.

  3. Patience says:

    Yet again wolf, nice work!

  4. SiliconValleySkeptic says:

    It’s fascinating to hear pundits constantly say “well, inflation is well under control in the U.S.”

    The rate of inflation on the largest and most important chunks of household expenditures are deliberately excluded in their numbers.

    Housing, food, healthcare, and energy somehow don’t seem to qualify as important measures of inflation when gauging the health of the economy and the economic state of the average person?

    • yngso says:

      That’s why there are degrees of lying, white lies on one end and statistics omn the other, statistics being the worst.

    • Wolf Richter says:

      “Housing, food, healthcare, and energy” are included in CPI. There is an alternate version of CPI, “core CPI,” which excludes food and energy because they’re so volatile. Both measures are cited together. Housing is over 1/3 of CPI and more of core CPI.

      • Wisdom Seeker says:

        Housing is not properly measured in CPI, unless you think that an owner has a clue what his house would rent for, if he tried to rent it, and has adequate incentives to accurately answer the government surveys on that question.

        Yes, “owner’s equivalent rent” is a huge part of CPI and it’s measured by surveying owners… most of whom don’t rent out their homes.

        Healthcare and energy are also radically underweighted in CPI compared to their share of the economy. One can maybe argue that by externalizing costs, consumers don’t pay the full price, but someone has to pay it and that should count against inflation for all.

  5. Brant Lee says:

    There are still people who buy Levis? Paper thin, you’re just buying the name, like Ford and Chevy, the quality died a long time ago.

    • Wolf Richter says:

      Bought them all my life. $20 a pair does it for me. It’s just about all I ever wear anymore. Blue and black. I used to wear suits on a daily basis – now relegated to weddings and funerals. Jeans go very well with a sports jacket or a leather jacket or a T-shirt.

      What’s “quality” in a pair of $20 jeans? The material is denim that loses its color and gets beautiful as it does. Used to be a sail cloth made in Nîmes, France, called “bleu de Nîmes,” which became denim in English. The seams are sturdy, reinforced with rivets (Levi Strauss designed them for gold miners). Jeans get better as they wear out — that’s what “quality” means in a pair of $20 jeans.

      • Cynic says:

        Someone met the great explorer Wilfrid Thesiger up a mountain somewhere in the 1950’s, and he complained bitterly about the tears in his Bedford Cord breeches: ‘Bloody rubbish they make these days, not like the old stuff!’

        We are fortunate, on the whole, that top-quality is still available – I certainly find that with clothes, tools, paints, leather, etc, – but it is all eye-wateringly expensive. But then it should be. And it should last.

        Italian proverb: ‘No quality at rubbish prices’. But we seem to want that.

      • Paulo says:

        Great article, with an automation comment below. However, W Levis jean appreciated. I, too, also just wear 501s. In fact, I bought a new years worth of wardrobe last week. The online price in Canada really had no deals, but there is a small solution for Canucks. Every Father’s Day, Mark’s Work Warehouse, (which has actually gotten trendy over the years), has June Father’s Day sale. Every year I buy two pairs of 501s and some new Mark tees (the best). Set for another year. Funeral? Wear a black shirt. The older jeans get reycled to the work drawer.

        I noticed the latest batch seemed to be of heavier and better quality cotton, almost as stiff as the old days. (No inference intended).


        • RD Blakeslee says:

          Inference drawn, anyway!

          I was having trouble with the credit card reader at the local Dollar general and when it came time to remove the card, the checkout lady said: “Pull it out”.

          “Hell, I haven’t been able to get it in for 15 years!”

          One good thing about women’s lib, I guess: She laughed.

        • polecat says:

          They generaly were ‘stiff’ in the old days because it was very uncool for one (if you were of the youthful set) to launder them !

      • RD Blakeslee says:

        Am I the only one left who wears 70-year-old, woolen U.S. Army issue used-to-be dress uniform trousers when it’s cold outside?

      • Ted Waller says:

        It’s great to have the option to buy these cheap jeans. If you want the old durability though, you have to pay up. Duluth Trading work pants go for about $50, Carhartt is at least $60. So the deflation is not as much as it looks.

        • Sarcastic Fringehead says:

          You can’t have the old durability because the sailcloth was originally made from hemp. If manufacturers switched back to hemp fabric demand would be cut in half, they are that durable.

      • IdahoPotato says:

        Try buying women’s jeans or any piece of clothing and trying to get decent quality that last even three years. Very rare to find.

        That is real inflation to me.

      • I pulled up that ad they want 41.65 for a pair of 501 shrink to fit in my size. Not sure what you are getting for $20?

        • Wolf Richter says:

          The internet is a market place where you overpay if you don’t know what you’re doing. You have to know how to work search.

          First clean the cache in your browser, everything, all passwords, cookies, etc. Never try to get a price from Amazon when you’re logged in to Amazon. Ditto for all other vendors. Then in search, play one vendor against another, get them to bid against each other, just like I did with Macy’s and Amazon. After you get the hang of it, it works like a charm, from jeans to plane tickets.

          Don’t try to do this on your smartphone because they know who you are, and what you did in the past, and you can’t erase any of it, and so you cannot easily play one vendor against another.

          They try to use variable pricing for their advantage. So you need to learn how to use it to your advantage. Saves a ton of money.

      • alex in San Jose AKA Digital Detroit says:

        Check out Wrangler Pro Rodeos. $20 a pair and good quality.

      • panatomic-x says:

        i have worn shrink to fit levi 501s exclusively for 40 years. the current cotton though acceptable is crap in comparison to the us cotton in older jeans. until two years ago, you could pay $90 and order 501s made from south carolina cotton. i have one pair left and i cherish them.

      • Marc D. says:

        Fascinating – never knew the origin of the word denim.

        A couple of years ago, I bought two pairs of Rustler jeans on sale for $20. They’re made by the same company that makes Wrangler, and they’re heavyweight denim. Not a bad deal. You won’t win any fashion contests, but they’ve held up well. I see today they’re on sale at Walmart for $12.97.

    • Mike G says:

      I rediscovered a pair of Levi’s I bought in the 90s and put away and compared it with a recent pair. The deterioration in quality now is glaringly obvious — thinner, less-durable denim and rivets are now copper-sheathed cheap metal instead of copper. They’re doing the typical American corporate scam of milking the brand name while cheapening-out the product, hoping people won’t notice.

    • van_down_by_river says:

      Correct. Levi’s stopped being Levi’s when they stopped making pants in S.F. I still have a pair from the 80’s, they feel great and look great. New Levi’s are not comfortable and look terrible – no wonder people stopped wearing jeans.

      I feel bad for people who buy crap like couches. All that crap and clutter clogging up people’s lives must weigh on them. No wonder so many are on anti-depressants. The price of garbage, like couches being made by foreign workers, is not rocketing but the price of food is rocketing. Good luck eating that couch after the price of broccoli hits $50/pound.

      Should I really care if a bunch of garbage, I don’t need or want, from China has not increased in price.

      Deflation in unnecessary crap and inflation in necessities (do people really need food and shelter?). Nice job Ben the Bankie.

    • Ervin says:

      I’m sorry but my last Ford went 130,000 trouble free miles and I only traded it in because I’m 72 and I just wanted a new car. The one before that went 204,000 again with no repairs of any consequence. The one before that went 167,000 and I gave to an immigrant family and they drove it for 5 more years. I can’t think of one thing those cars could have done for me.

  6. Malthus says:

    My local “handyman” has raised his cash rate from 20 per hour to 30 per hour over the past 4 years. (He is worth this and more by the way …and he has more work than he can handle.)

    • BrianC - The first one... says:

      Sounds like he can raise rates again if he has more work than he can handle.

      • ML says:

        I have not raised my rates for years. I too have more work than I can handle. But the secret of competitive I find is to persevere with the low rates and refuse work that doesn’t interest me. I realise that if I were to increase my rates I could earn more but the risk is that customers would not pay by return and come back to me whenever the need arises.

        To cope with rising costs for me I have cut back on buying anything that I know I don’t have time to get my money’s worth out of. Probably I should have done that regardless instead of now being surrounded by loads of possessions that remind me just how much capital is tied up in in unproductiveness.

    • alex in San Jose AKA Digital Detroit says:

      IMO at $20/hr he was underpaying himself. Babysitters make that, and suckurity guards with a few years in make $25 or so in my area.

  7. Satya Mardelli says:

    Wolf – I learn a lot from you. This story is one of the most informative that I’ve read in quite awhile. Keep up the good work!

    • chillbro says:

      Same. It’s funny how when he explains it you, you feel like you already know this but just haven’t thought of it yourself :D

  8. David Calder says:

    Now I’m sorry I missed your gathering in San Francisco as this post came from the heart.. I think this is your best post so far…

  9. illumined says:

    Globalization has had some benefits but it’s also had some very severe drawbacks.

    One of the drawbacks is overall product quality isn’t as good as it used to be. Sure there are some counter examples here and there but from what I’ve personally seen there are a lot of brands that are definitely not what they once where. For example, I had an older car I wanted to keep running because I was fond of it, but nearly every replacement part I put in it died after 2 years or less. Why? Because all the parts that were available from it from brands like AC Delco were made in China. And there’s more, 20 years ago I got a nice leather office chair that lasted quite a while. A few years ago I got another one, but this one broke after about a year. The difference? This one was made in China. How about TVs? Sure those flat screens are big and nice, but how many of them are going to make it 5 or 10 years before dying? Not many I’d imagine, on the other hand at home we have a CRT from 1992 that works just like it did almost 30 years ago.

    The second drawback is that it heavily distorts the economy. The gains disproportionately go toward the owners of assets and the losses are shouldered by the working class whose high earning production jobs went over the border. And what about that ever shrinking working class?

    There’s also some pretty good research to back that last point up. Michael Pettis has made a few interesting arguments including that US trade deficit is linked to the US government deficits, that trade deficits cause either high unemployment or credit bubbles, and also that it leads to imbalances in the economy that inevitably causes a crash.

    Personally I think globalization for America has just ended up being little more than a narcotic that has serious and highly detrimental long term consequences.

    • yngso says:

      That’s right, the distortion is enormous. Constantly buying new stuff means constantly producing more and more and more. With the world population still growing and the developing world where most people live get richer, the strain on the Earth’s resources is totally unsustainable.
      The central banksters have run out of road, and the Great Deflation is coming just in the nick of time. The producers of everything will be forced to produce quality at much lower prices than in the past, which they can do because of technology and much increased efficiencies, because people won’t have money much money to spend. The digit press in the Eccles Building aka Fed HQ will be working at crawl speed.

    • BrianC - the handsome one... says:

      With regard to perception of product quality, I think there is a real selection bias there. There has always been junk products. We just don’t think about the junk that didnt survive because we don’t see it – it got thrown away.

      Remember when ‘generic’ was a bad word? It was for a reason. Anything not name brand bore an outsize risk of being unusable/instantly broken. Kmart went out of business for a reason.

      The internet and online review systems has virtually eliminated the ability for retailers to sell garbage. They just don’t survive. If you research and buy something online, the worst you will get is “decent for the price paid.” This is a huge unmeasured ‘deflationary’ trend.

      • illumined says:

        True, there have always been junk products, however with the rise of the internet and offshoring there are a lot MORE junk than there used to be. Funny you should mention this as a reason Kmart went under when Amazon is packed full of Chinese knockoffs and low quality goods. And also like I mentioned, numerous name brands like AC Delco and KYB are nowhere near as good of quality as they used to be. Remember when Honda’s cars were bullet proof? Those days are long, long gone. You simply can’t produce the same thing with the same methods cheaper without there being a serious compromise in terms of product quality, QA costs money.

        And online reviews? I wouldn’t trust them as far as I could throw them. It’s estimated that at 30% of Amazon reviews are fake, and it wouldn’t surprise me if that study underestimates the problem. There’s also the fact that most reviews are made shortly after purchase, but what about a couple of years down the road when their gadget fails? Are people really going to go back and drop a negative review? Some might but most won’t.

    • RoseN says:

      The replacement of stuff every few years represents a form of hidden inflation. The lifetime cost of a given item goes way up when you realize how often you have to “rebuy” it.
      I’m exploring the route of buying used small appliances made in the last century with the hope that they’ll endure longer.

  10. Rcohn says:

    Suppose you saved $15,000, which was enough to buy a car in 1999. And suppose that your rate of return on that $15,000 equaled the inflation rate . Would you have enough money to buy a similar car in 2019?Anyone who thinks so is smoking some good weed.
    The simple fact is that adjustments to the inflation rate are adjusted so that they under exaggerate the true inflation rate. A better example is housing prices. Median housing prices in San Francisco are around $1.35m.At 4% inflation prices would be 2.19 times higher than there were in 1999.Were housing median housing prices in SF 616,000 in 1999?Or college textbooks or tuition or even better medical costs.

    • Wolf Richter says:

      If they still made that very same car that cost $15,000 in 1999, today it might cost something like $10,000. But consumers would refuse to buy it because they would consider it a piece of crap.

      BTW, you can get a nice three-year old car for $10,000 today that has all the features that people couldn’t even dream about in 1999.

      • Joe Edsel says:

        I’d buy that 1999 car. Because most of the ‘features’ that have been added in the last two decades are stupid stuff I don’t want as to me the reason I buy a car is to get from point A to point B. I don’t need bluetooth wifi in my car. But a decent, dependable car that can run for $10k would be a godsend in this day and age.

        Beyond a car that runs and works, the features I want are 1) a speedometer to keep me safe from the radar gun extortionists, 2) an odometer so I know when to change the oil. 3) Seat belts (Thank You! Ralph Nader). That’s about it. Offer me a cheap car with only that and you’d make a deal.

        And considering that most new cars are so completely unaffordable for most Americans, I could even figure out how to market such a car. Probably go back to the old VW marketing plan before they decided to lie to everyone about the pollution they were spitting out.

        • The Colorado Kid says:

          I agree with you on buying a simple utilitarian vehicle Joe, but what you’re leaving out is the quantum gains in safety with a newer model, else I would go back to a ’67 VW Bug.

        • cd says:

          leasing my friend, leasing….

          the best car to buy is one car owned lease return….the lemmings were sold easily…

          their is an old saying in auto sales, their is an ass for every seat…..

          Dealer don’t make jack on new cars, used cars, finance and fixed operations is the cash cow…

        • 91B20 1stCav (AUS) says:

          Joe-you can’t give ol’ Ralph the lawyer all of the credit for seat belts. Ford went big on offering them as an enhanced safety feature in the late ’50’s and was met with a terrific yawn from the buying public, something well-noted by the other manufacturers. Even today, we have to have laws making it a violation for not wearing your seatbelt when operating a vehicle so equipped (and don’t forget the early ’80’s when seatbelt-ignition interlocks were mandated, no doubt rescinded by Congress within two years when they discovered even they couldn’t back a new car down the driveway without buckling up first. How many more lives might be saved if interlocks still existed? Much better to install passive restraints (that still require seatbelt use to be effective). Of course, that raises the myriad difficulties involved in attempting to legislate what might be termed common sense, whether it’s wearing your seatbelt, knowing how to drive a car with swingaxles, or, as it seems to this curmudgeon these days, learning how to drive well at all…).

          A happy Father’s Day to you who are, and a better day to us all.

        • 91B20 1stCav (AUS) says:

          @Joe-correction-should have said ‘mid-’70’s’, not ‘early ’80’s’ re: seatbelt ignition interlocks. Age-related memory misfire. My apologies and a better day to all.

        • Marc D. says:

          Last year, I had a Nissan Versa as a rental. It was like driving a car from the 1990s. Very few modern features. They’re no-frills, with a 109 hp engine and a starting price of $12,460. But they actually have a good-sized back seat and trunk. So if you want a 1999 car, you could get one of those as a modern equivalent.

      • yngso says:

        I dream about buying a very nice Merc, but not new. In Europe very nice used ones are dirt cheap. IOW high quality at a very nice price.

      • mtnwoman says:

        A 2016 car for $10,000?
        Not a Honda unless it has 100K miles on it already.
        I’ve been looking.

    • MC01 says:

      Honda still sells the CG125 motorcycle in many countries. Apart from using cheaper materials (which impacted durability and reliability) it’s exactly the same thing as what was sold in Europe 20 years ago. Not inflation adjusted the CG125 cost about $2,500 in 2000, when Honda pulled it from the European market. In Pakistan it presently sells for under $750 brand new. Chinese clones can be had for about 30% less.

      What changed? As said some components got cheaper and less durable but much more critically manufacture of this model was moved from Brazil to Pakistan. Average monthly wage in Brazil is about $600. Average monthly wage in Pakistan is about $130.
      No more is needed.

      • But wait! There IS more! That has happened along the entire supply chain!

        But I see both sides. American auto makers learned their lesson when they had their asses handed to them in the 80’s by the makers of Japanese “junk”. I just bought a 2001 truck with what used to be an “on death’s door” amount of miles on it. It runs beautifully, pulls what a 1 ton would have 20 years prior, and would still fetch a 5k. But oy that plastic interior! Thank god for 3D printers!

  11. Kronosky says:

    So, with wages being flat, or even below inflation, you can see all this good stuff to buy that seems cheap compared to previous years, but you can not afford to buy any of it because the healthcare, insurance people, bankers and don’t forget the lawyers keep taking a bigger and bigger slice of the pie. Welcome to the American Dream. I still like George Carlin’s version the best.

    • Jonathan says:

      I regard official inflation numbers as pissing into my ear and telling me it’s raining. My single income, blue collar dad was able to comfortably raise us 3 kids in the 80s to 90s. Fast forward to today, a dual-income grad couple is already struggling to pay for housing, let alone raising one kid…But hey at least we have can $100 smartphones that we change yearly, amirite?

  12. Iamafan says:

    How about a good old American scam? Yesterday I pulled the rest of my money out from Citibank. We wrote ourselves a check which we deposited to Bank of America to buy Treasuries. Citibank charged me 10 bucks overdraft fee when I had so much covered in their joint or combined checking and savings account. So for 10 bucks they lost a customer who had been there for decades. When you can’t freely use your own money, it sucks. Their telephone customer service sounds it’s so far away and not even America. They sound like they are in the Philippines. Good riddance.

    • chillbro says:

      Banks think they are doing you a favor. I closed my BoA checking bc they re ordered transactions half a decade ago when I was in law school to a fintech comapny that actually pays 2.25 interest on a checking account. They think they can treat consumers like crap and get away with it. Screw them. I don’t forget. They can choke on the 35 bucks.

  13. timbers says:

    My experience with inflation for goods in this case food, is that inflations are much much higher than the inflations the Fed sees.

    Here’s my shopping/inflation experience, culled from Amazon and Eden Foods on a few items because I can easily look back at the history:

    1). Lundberg 25lb bag a Basmati rice grown in California (one of the few locations that did not use pesticides containing arsenic that now remains embedded in soil and contaminates rice)

    04/2017 – $48.47
    11/2018 – $63.93 and $63.40
    Today: $63.00

    Eden Organic Dry Black Beans by case (36lbs) does not include shipping:

    08/2016 – $42.66 per case
    03/2017 – $42.66 per case
    06/2018 – $43.93 per case
    06/2019 – $56.52 per case

    • timbers says:

      Err…I said case is 36lbs, it’s actually 12 lbs

    • Wolf Richter says:


      You’re doing something wrong. This is not inflation, you’re just being taken to the cleaners. We buy 50-pound bags of California Homai Calrose rice (Japanese style rice) for about $24 at Costco. It has gone up about $3 in a decade.

      We’re paying $0.50 per pound. You’re paying $2.52 a pound!!

      • cd says:

        actually the lundberg is cheaper at costco than his quote above also…..
        I buy it there…

      • van_down_by_river says:

        As the man stated, he is buying rice from a region where (at least he believes) soil is not contaminated with arsenic. Can you say the same? If not, it is not an apples to apples (rice) comparison.

        Rice is purported to be unhealthy in any case. It is made up of polysaccharides without much fiber or micronutrients – might as well be eating candy. It’s wonderful if your only other option is starvation, but if that’s not the case you might consider more healthful alternatives.

        I’m no nutritionist, so take what I say with a grain of rice, but you might consider eating rice on rare occasions only.

    • Since you mention it, I like to point out that virtually ALL food was organic, local and of greater nutritional value a generation ago. For free. Life expectancy has gone down 3 years and counting, too, despite all those “hedonic improvements”. I get the hedonics angle, but they play up that molehill while ignoring mountains like polluted water, overcrowded campgrounds with insane waitlists, neglected bridges… Citizens of the 1890’s built an amazing park in my city. We can’t even keep the public bathroom open.

    • Nicko2 says:

      The arsenic problem with American rice is due to the historic cotton industry in the south which contaminated the soil. Basmati rice from Asia is mostly arsenic free.

      • Wolf Richter says:


        The cotton theory may be true in the South but not in California. Rice in California’s rice region (Sacramento Valley) is grown on reclaimed land. This land was reclaimed about 100 years ago and has always been used to grow rice. There has not been any cotton planted on this land. Arsenic in this region is naturally occurring and comes from the volcanic rock.

        Also, we at least test the water and the rice for this stuff. How do you know that the Asian rice you buy is not contaminated?

  14. Enquiring Mind says:

    Non-PC way to think about prices in a flatter world.
    The China Price is the supply side, who can make it for how much.
    The Mexico Price is the demand side, what would somebody pay if they didn’t have much, or weren’t swayed by frills or peers.

    • HowNow says:

      “…or weren’t swayed by frills or peers.” EM – are you talking about human beings or some other species?

  15. Joe says:

    Quality really has suffered over the decades.
    I keep my 30 year old couch and chairs for the comfort and quality.
    My low mileage car of 12 years still is mostly metal and seeing the accidents today in plastic cars…totally devastated mostly plastic pieces left behind. Seen an a accident and it was just parts strewn all around.
    Inflation also took away our use of pennies and gave us plastic ugly money. Some old money had such style…

  16. Citizen AllenM says:

    LoL, premium organic food manages higher prices, yet rice farmers in India get just $6 for 40 kilos. Inflation in corn is now slightly showing up, to allow record stockpile to be sold ….

    • timbers says:

      BTW, Lundberg does have organic rice but I just get the non organic in this case. The bigger issue us the arsenic content which is mostly determined by the soil & past pesticides now banned that poisoned the soil. I do but organic on certain foods known for high RoundUp content which is rapidly increasing in our foods and extremely bad for health. Also read Indian rice has less arsenic, Lundberg I think tested lowest it near lowest in arsenic content.

    • Nicko2 says:

      Another comparison….Coffee farmers in Ethiopia are currently growing at a loss due to collapsed global prices.

  17. Paulo says:

    My first computer 486…with printer ended up costing about $3500 dollars. Supposedly, when I returned to school (late 30s) to BC Institure Technology I just ‘had to have it’ to successfully complete the program. No. (Waste of money.) DOS commands? A cheap digital watch is a super computer compared to a 486…for $10.

    My comment is about the logging industry on Vancouver Island. In the 70s a young guy could get a job, anywhere. The pay was unbelievable, and you could land either a town job or camp job. Fast forward a few recessions and downturns and the industry is now so automated/mechanised it isn’t the same at all beyond the modern trucks hauling logs on gravel roads. What used to take 5-6 guys for 4 truckloads per day can now be done with three operators…and they’ll get 6-10 loads out. Sometimes, there are only two machine operators leaving stacked log piles along the roads, and self-loading trucks haul out on their own schedule after everyone has gone. 1/3 the crew for over 2X the production.

    And with all this, they can’t find qualified newbies. All you need to do is be able to run a power saw safely and do as you’re ttold with no complaining….for 60K per year staring out. Operators? 100K+. They just can’t find people who want to work in the woods, anymore. The average age of fallers is late 50s, and companies are worried they won’t have the people needed in just a few years. ($650/day for fallers with a saw, anyway….6 hour work day). Sure, there will be downturns and layoffs for snow and fire season, but what’s wrong with a little time off? The only thing I can think of is that past downturns have scared people off, and society has changed. Kids would now rather run a computer than work with their hands in the woods for 2-3X the money. I can’t see it becoming any more efficient than it has by 2019.

    • Bet says:

      Same in the puget sound area. Except it’s working on the boats and ships. No takers
      By the young. Let’s all be internet influencers! I thank my parents daily I was taught to not fear hard work and sweat

    • chillbro says:

      That’s very dangerous job. Why should a young man risk his life for good to decent pay? Money comes and goes but you can only live once.

    • cd says:

      We sold Alldata in the 90’s to independent repair shops in Sun pentium machine CD-Rom for 20K and it had 2 sets of chilton or motors discs..$1 lease buy out at end…

      today you can get it on the cloud in software package for $199.00 a month or less…..or buy on demand when needed…..

    • Wisdom Seeker says:

      Plenty of workers available at higher wages. Lack of interest says the wages are too low for the risks and working conditions and lack of career upside.

    • Where do I sign up? People said the same about tech, but after school the only work I got was applying for jobs. People talk about this “amazing” economy… I see a lot of jobs alright. All paying about what I made in the 90’s, when houses were 1/10th what they are now and the streets weren’t full of tents. So I’ll just say I’m skeptical.

      • LessonIsNeverTry says:

        Not everyone in tech is rich but anyone who isn’t making a damn good living in the tech industry is doing, or has done, something wrong. It won’t last. Nothing does. But the last 7 years in tech have been amazing and *anyone* with the smallest amount of talent can get a good paying job.

        • I’ve made contributions to large code projects, understand the difference between functional and OO programming, what a closure is and why… But ya, I HAVE done PUHLENTY wrong. Taking a $36k job hacking out websites for car dealers like my classmates did is not among my mistakes.

          But let’s talk about why the expansion of homeless camps I claim to have witnessed comprises an “amazing” past several years. In order to understand the economy, I feel it’s important to come to an agreement about the definition of “amazing”. Whether we wear jade or rose colored glasses, we still need to see through them.

          Also, I think Levi’s are comfortable, and that Carhart’s don’t last nearly as long as Ben Davis jeans.

    • tom says:

      I hear ya. Quit looking for the unicorn employee. Increased residential rates modestly…tripled commercial rate. Just two of us. Involved in each job from start to finish. No shortage of work, stress level way down.
      No one out there to do large commercial…so they will pay & wait for us.

      So if ya like dealing with sh*t ( literally ), no shortage of work.
      And good or bad economy its still hip boot deep.

      Sorry Wolf…in my business the levis don’t last long.

      Duluth ( cold wear ) & Carhart ( fair weather )

  18. Marcus says:

    This was a great article. Since moving to SoCal I’ve been thinking about this because my cost of living changed quite a lot. I eat out often and restaurants in La Jolla are outrageously expensive. But Costco is just as affordable as ever. A drink at a bar is 3x what it was in FL, but a great bottle of scotch is the same. Anything with a service is inflated. This has driven me to make new decisions about how I spend my money (100% worth the move BTW).

    • BrianC says:

      San Diego restaurant inflation is the real deal. Much much worse than the grocery store. Once there is a slow down, these mediocre overpriced joints are gonna get killed. There is barely any reason to eat out unless you go to a top end place. There’s just nothing they do better than anyone can do at home.

      But this also highlights an interesting food deflation trend. Grocery store bought food is much better than it used to be. Restaurants used to serve better food because they were the only ones able to buy the better quality ingredients wholesale. A pork chop from the grocery store 20 years ago was garbage. Steaks the same. Now I’ll put my homemade ribeye up against any steak house offering. Food delivery technology is vastly improved.

  19. raxadian says:

    “New” is not equal to “Good’.

    “Expensive” is not equal to “Good Quality”.

    Time is money but so is traveling and shipping costs.

    Never trust advertising, and don’t buy stuff online if you don’t have the option to pay in cash.

    Don’t be afraid to try new things but also be careful about it.

    And there is more.

    Basically distrust both prices that are too expensive and prices that are too cheap.

    Everyone hears the “If someone is too good to be true, it probably isn’t.”.

    But not enough people hear “If something looks too expensive, it may be because they think you are an idiot that will pay it anyway.”

  20. JSM976 says:

    Excellent article Wolf! It’s good to put things in perspective.

  21. Michael Engel says:

    Hong Kong protest won bent their will on Xi, they won.
    Tehran spank the Hormuz strait, in a massage floating above water, with a bonfire.
    Without the mess, ==> the CPI rest.
    GOOGL lead the charge in a strong down thrust. Their reaction is a thud.
    NFLX trading range is a good short, with too many selling tails above. They breached support several times, hit by a slide tackle.
    GOOGL put tariff on guys like me. FB hired lawyers to build a wall.
    I use Levis blue jeans for 10 years and my Bloomie stuff rest behind closet doors, covered with dust.
    14K gold Jewelry became 10K and the 10K is almost gone.
    Traders aim @ 1,500 gold, and oil @ $100.
    But the twisted US bond rates, from 3M, 6M…2Y..10Y…to 30 years,
    show no gaps. Canada yield curve is caving in the middle. Germany up to 15Y, sank underwater.
    The US rates are all tangled together, creating a bottleneck.
    Deleveraging will push US treasuries rates down.
    The next soup line will not have starved people dressed with suits and Borsalino hats.

    • tom says:

      Was the bill killed or tabled? XI & ccp wont accept that.
      Watch the $$$ flow out of HK banks. People in the streets know who owns Lam. Interesting times.

  22. The 1% spends a greater part of their income on services, (lawyers and acct’s to watch lawyers and acct’s) Inflation in services coincides with the unemployment rate, (slowdown in immigration). We are in that part of the cycle. Job openings exceed level of unemployed.

  23. Setarcos says:

    In roughly 1990 when storage often meant a floppy disk, my division bought a 286 with a 1GB hard-drive and it was over $30,000. Some things have definitely gotten cheaper.

    On the other extreme, I have a few pieces of clothing and luggage by Filson. This stuff could easily show up in a thrift store a hundred years from now. Value = quality divided by price minus resale value.

    • van_down_by_river says:

      Your division got ripped off. In 1991 I bought a 486 with math co-processor and 2 GB addressable RAM and 5 GB hard drive for around $3000. It had to be purchased piecemeal from the back of magazines and assembled – minor inconvenience. It ran Borland’s C++ development package and Fortran compiler beautifully.

      $30,000 in 1990 for a 286! I think you are mis-remembering

      • Setarcos says:

        May have been 1988-1989 if you purchased a 486 in 1991. Anyway, probably did get ripped off nevertheless.

      • Harrold says:

        2 GB of RAM in 1991?

        What OS were you running?

        You might have meant 2 MB of RAM.

    • andy says:

      Agree, kingdom for a quality horse, minus resale value of said horse.

  24. ewmayer says:

    Good points about not everything getting more expensive because price deflation is *supposed* to happen in goods as a result of technological progress and market efficiencies. One counterpoint in that regard, though – there is a hidden (at least in terms of most discussions) cost of those globalization-resulting cost savings, namely the concomitant *wage* deflation. Those now-imported goods may be cheaper in absolute and even in official-inflation-adjusted terms, but that lower price may be small comfort to folks who lost their jobs to the same offshoring and whose incomes plunged to 0 as a result.

    The various dodgy ‘adjustments’ applied to inflation measures, such as hedonics (Wolf’s laptop-vs-supercomputer example), substitution (steak is now too pricy so you buy ground chuck, ergo no inflation!), make meaningful comparisons nigh-impossible – likely a “feature, not bug” thing going on. Also note that the worst inflation seems to correlate almost perfectly with life’s biggest-ticket items for most folks: housing, education, medical care. House price inflation is obscured by the use of the “owner’s equivalent rent” fiction – instead of simply collecting sale-price-pairs such as Case-Shiller does, the government just makes up a fictitious measure. And unlike cars and tech, when it comes to the same housing selling over and over, by definition you are *not* getting more than a few decades ago – sure, there will have been upgrades and improvements, but all on top of a fundamentally depreciating (in terms of physical deterioration and cost to keep it at bay) asset. As a result, my current favorite broad inflation metric is the “cost to raise a child to age 18” one. The last time I checked that, ISTR it implied a long-run (50 years) annual inflation rate of around 4%. The one major drawback: It doesn’t include college cost. IOW, it’s likely on the low side in terms of what it costs to raise a child through college. It has the big plus of being more or less “hedonic-proof”, because kids graduating college these days are not “superior in every way” to those of decades past. :)

    • Erle says:

      You have a concept that has been lost in the statistics morass. The cost of raising children is making them scarce in the families that have to pay full boat for them while paying for the indigents.
      One of my favorites is the sliding scale for tuition for cash payers and those that already get subsidies from the cash payers by way of taxes.
      Your last line is a truism in spades.

  25. Michael Engel says:

    – 20 LB Basmati rice from the foothill of the Himalayas, in a sack, from WMT, at $18.52.
    – Pressure cooking with few sweet potatoes for $0.88/ lb & purple
    cabbage for $0.78/ lb. Throw in few tomatoes, beans, corn and organic carrots and u get high quality soup & food , for few days, with the whole spectrum of taste and colors, on deflated cost.
    – No oil please. No spices or salt to fool the taste buds.
    – Avoiding doctors and restaurants is not a crime.

  26. farmboy says:

    For the time being commodity prices in dollar terms have been kept in check. These low prices have been eviscerating the producers and industries across the globe and as a whole they have only been able to continue thanks to a tremendous buildup in debt which is making the situation very fragile. How much longer this will continue is anybodies guess but one day it must end but in the meantime we can party on.

    Most like to point to globalization as the primary cause of consumer prices staying in check. I agree it plays a significant role but am quite convinced that the massive amounts of cheap and fiat credit flowing to the producers and supporting industries has been subsidizing the price to the consumer and when this flow ends or even slows down the cheap prices are over for good.

  27. raxadian says:

    I do not think cheap cars will disappear, but getting an “offline car” will get harder and harder.

    For example there is no oint of having an online car in Africa because for most of the continent Internet is crap. Forget G5, in some places they barely have G2. The Guardian did a few articles about Internet in Africa one or two years ago and things haven’t improved much since.

  28. Old-school says:

    Bought a big black Merc S430 about 3 years ago for $6500. It’s a joy to drive especially on open road. Peak mpg is right at 60 mph and is 34 mpg. Air ride suspension and 7 speed tranny
    Probably will do another one when this one is done. I have always had good luck buying quality cars with about 100,000 k miles.

  29. Old-school says:

    I look at inflation as an individual challenge. Once you retire you have a lot of time to bargain shop. I am pretty sure my personal inflation rate has been negative over the last ten years. My rent is actually 10% cheaper, groceries cheaper thanks to Aldis, clothes generally thrift store price, health care less because of nuttiness of obamacare and being able to make my income what I want.

    Young people with children are the real loosers in the inflation game I think. Got to live in good school districts and you are under a lot of time pressure if you have a professional job.

  30. ft says:

    …and for those who have now been inspired to buy a couch, I see a sofa ad following us at the top of the page today. I’m not going to like it when my car starts behaving this way.

  31. John Taylor says:

    I’m curious if there is an inflation measure that is weighted by the basket of goods and services purchased by a median worker.

    It couldn’t be that hard to see how median workers spend their money in an area. Then they could either average different regions together for a national rate or break them out by region.

    Anyway, it seems it would create an inflation number that more people could identify with.

  32. joe says:

    Interesting but what’s your point?

    • 91B20 1stCav (AUS) says:

      joe- I think John’s proposed metric would allow a better look at how the many different ‘median’ populations in this geographically large nation are actually doing economically, as opposed to the usual oversimplified MSM mantra: “…the Casino’s up, it’s all good!…/”…the Casino’s down, it’s all bad!…” narrative (and I thank you again and again, Wolf, for your tireless efforts to keep the emperors naked, as well as all of the commenters who provide an anecdotal equivalent to Mr. Taylor’s proposal (no chance you’re the John Taylor of Yankee Trading of yore, are you, John?)). A better day to all.

  33. RB says:

    I find much written here on this topic to be weakly entertained. One might read Gail Tverberg on the real ‘costs’ to coveting ‘cheap’ goods from overseas. Her perspective concentrates on energy utilization, nation energy needs, and the often poor choices made. The global consequences, whether or not one believes in global climate effect, are daunting.

  34. BK says:

    I’ve worn Levi’s since the 1970s and I broke a zipper on my last pair. Levi stopped using YKK zipper brand that I’ve been looking at most of my life. YKK is Japanese and I guess there are Chinese zipper companies who can deliver a lower cost product (and less reliable).

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