Saturday, April 5, 2014

Quick Someone Notify the Fed: Smartphone Price Deflation

For some peculiar reason (think banksters love inflation), the Fed hates falling prices. But falling prices are good. Indeed, in the high tech sector, falling prices occur regularly. It's great for consumers and the most successful firms are the ones that find ways to operate in this falling price environment.

The Economist informs on the falling prices in the smartphone sector:
 Smartphones are becoming radically inexpensive. Of the 1.2 billion gizmos that will be shipped this year, almost half will cost less than $200 and one-fifth will cost less than $100. Three years ago, few sub-$100 smartphones were made at all: devices at $400-plus made up half the market. Yet as production costs have fallen, vendors can wrap features around ever-cheaper standardised chipsets to hit ever-lower target prices. As costs go down, quality is rising. Last year 87% of phones priced at less than $80 had processors faster than 1 gigahertz, up from 42% in 2012, says IDC, a research firm.
And, yet, in a room full of financial reporters, Fed chair Janet Yellen can spout nonsense like this and no one challenges her:
Inflation has continued to run below the [Federal Reserve Open Market] Committee’s 2 percent [inflation]objective. Given that longer-term inflation expectations appear to be well anchored, and in light of the ongoing recovery in the United States and in many economies around the world, the FOMC continues to expect inflation to move gradually back toward its objective. The Committee is mindful that inflation running persistently below its objective could pose risks to economic performance.

(Also see: Peter Schiff: The Audacious Attempt to Promote Price Inflation)

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