Monday, October 14, 2013

Awesome durable goods deflation

Mark Perry has an interesting post which highlights the fact that over the past 20 years the effective cost of clothing, measured in hours worked, for the average worker has declined by almost 50%. In that same vein, I offer an updated version of a chart (first featured over 3 years ago here, with a detailed explanation of the role China has played in this here, ) which highlights the huge and growing disparity between the prices of durable goods and just about everything else:

Since the end of 1994, the average price of durable goods has declined by almost 30%, while the price of services has increased by 60% and the price of non-durable goods has increased by 50%. Over the same period, the average hourly earnings of private sector non farm workers has increased by 74%. This means that the average worker only needs to work about 40% as much today in order to buy durable goods (e.g., computers, cameras, cars, TVs) as he or she did 18 years ago. Put another way, one hour of work today buys about 2.5 times as much in the way of durable goods as it did in 1995. 

This kind of deflation is awesome. Thanks to durable goods deflation, as Mark notes, "the standard of living for most households has actually increased significantly over the last 20 years, when measured in what is ultimately most important: household consumption and the affordability of life’s basics." 

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