About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service

The quality, durability, utility and enjoyment-of-use of our products and services has been plummeting for years.
One of the more mysterious aspects of the official inflation rate is the hedonic quality adjustments that the Bureau of Labor Statistics makes to the components of the Consumer Price Index (CPI). The basic idea is that when innovations improve the utility (and pleasure derived from) a product, the price is adjusted to reflect this improvement. So if television screens become larger, while the price per TV remains the same, the hedonic quality adjustment adjusts the price down when calculating the CPI. In other words, since we’re getting more for our money–more quality, more features, more goodies, more pleasure–the price is adjusted down to reflect this. If a TV that cost $250 had a 19-inch screen in the old days, and now a $250 TV has a 27-inch screen, the price of TVs in the CPI is adjusted down to reflect this increase in what the consumer is getting for her $250. So while a TV still costs $250 to the consumer, in terms of measuring inflation the TV is reckoned to cost (for example) $225, as the consumer is getting a larger screen for her $250.

This post was published at Charles Hugh Smith on TUESDAY, OCTOBER 10, 2017.