Lower Prices and Better Performance: What More Could You Want?

On Friday, February 13 the Bureau of Labor Statistics published preliminary estimates of the rate of inflation in 2025. The numbers still need to be seasonally adjusted (the price of sleds tanks in the summer). But these give us a preliminary view of what happened to prices.

The increase for all items was 2.4% from January of 2025 to last month. This is still above the Federal Reserve’s target and may delay future interest rates. But not all price changes are the same. In particular, the release shows that telecommunication goods and services, broadly defined, continue to experience slower inflation and even price declines, despite increases in performance.

Price increases for many hardware communication devices rose 1.6%; slower than other sectors of the economy. This includes computers, peripherals and smart-home assistants. Televisions, however, fell by 4.8%, which raises an interesting fact. If you go to purchase a television tomorrow but walk out empty-handed, you can be fairly sure that if you come back in a year, televisions will be cheaper and of better quality. That changes the nature of the market. Consumers are more likely to wait and manufacturers know that in order to stay in business their products need to be cheaper and better over time.

This is especially true for products consisting largely of software rather than hardware. The cost of residential phone service increased by 3.1%, but the price of wireless phone service driven by software fell by 4.3%. Cable, satellite and livestreaming television service prices rose by 2.7%, above the average for all items. Markets that require large investments of costly and difficult to upgrade hardware, as opposed to software, which can be routinely upgraded, have a tougher time responding quickly to new innovations.

The price of Internet service rose by 3.5%, possibly due to a combination of large demand for service (broadband deployment is closely linked to economic growth wherever it occurs) and persistent delays in permitting new buildouts. Interestingly, the price of video purchases, subscriptions and rentals rose 9.1%. This undoubtedly reflects some of the price increase for physical goods such as paper, metal, and plastic. But since each of these sources generates an enormous amount of content each year, it might also reflect the fact that consumers are willing to pay more for content they find more desirable.

Finally, the price of smart phones, one of the most sophisticated and ubiquitous products in the economy, fell by 10.6%. Spreading access to the full potential of this technology by increasing the power of its microchips and software, increasing the speed of broadband deployment, and generating apps focused on markets that matter, such as health, education, advanced manufacturing, and logistics, should have a huge potential for further improvements on both price and performance.