PriceSCAN Blog

The overall PPI fell 0.6%. That was mostly due to a big decline in energy prices (-3.5%), and indeed, excluding the volatile food and energy sectors, the so-called core PPI rose 0.1%. And that's where tech prices come in. Computer prices were a key factor holding the core rate to this relatively benign level. They dropped in May by a stunning 4.8%, their biggest decline since January. What's driving this plunge? Candidate market forces certainly include low foreign labor costs and the commoditization of computers – Lenovo's purchase of IBM's PC business comes to mind, for example (see Laptops at China Prices and Can Dell Compete With The China Price?). There's more to this tech deflation, however. Despite significant increases in processor speed and abilities (i.e. hyperthreading and dual-core multi-thread architectures – see Core Wars) there have been few new applications introduced that demand these new hardware capabilities. Most of the software that does require such horsepower is in niches like gaming and workstation apps. Without innovative applications to motivate buyers, demand tends to be limited to that produced by overall economic growth and simple lifecycle driven unit replacement. The industry has been hoping for relief from Redmond, but the way Microsoft keeps pushing back the release date for its new operating system (code named Longhorn), one wonders whether we'll see a new Ice Age before it shows up, and I don't mean a sequel from Fox.
Looked at over the last few months, overall pricing data is a bit less friendly, and the markets and the Federal Reserve will likely continue to contend with the risk of accelerating inflation. Those interested in buying computers, however, are enjoying a happy state of affairs, as a casual inspection of the prices in our computer category will attest.