Supply chain disruptions are so bad that inflation is hitting a sector that has been historically untouched by it: Computers.
In fact, the supply disruptions have “derailed Moore’s Law,” DataTrek Co-Founder Nicholas Colas wrote in a note, which pointed out that computers are now 8% more expensive than a year ago, “the first time tech hardware has ever contributed to inflation.”
Moore’s Law is a rule stemming from a 1965 forecast by Gordon Moore that predicts that the number of transistors on a chip doubles every two years. In other words, as technology products get better, faster, and more powerful over time, their production costs diminish.
Because the advancements are seen to benefit consumers who experience relatively lower prices, the Consumer Price Index — which measures the average change in prices over time for a set basket of goods and services — factors Moore’s Law into its equation.
As a result, technology products generally have had a “deflationary effect” on U.S. price levels and haven’t experienced inflation as much over the years on the CPI due to a quirk in how their price increases are calculated, Colas noted.
According to Colas, the government regularly performs a “hedonic adjustment” on tech products to account for increasing utility — since one gets better chips and products for the same money.
The adjustment itself doesn’t fully make sense to the layperson, Colas flagged.
Though laptops and computers are expensive items, “because of hedonic adjustment, the CPI calculation says a computer is 69 percent less expensive now than it was in 2006,” he explained.
“No doubt the latest product is much better than the 2006 version, but is it 69 percent better? Reasonable people can differ on the answer,” Colas added.
Nevertheless, inflation is now cutting across sectors in America and even tech hardware has become inflationary, as seen in the chart below.
“After 14 years of acting as a drag on aggregate price levels, consumer Tech hardware is contributing to inflation,” Colas said.
He warned that seeing computer prices rise like this — despite being adjusted for utility purposes — is a concern.
“Moore’s Law has, for the moment, met its match in the form of supply chain constraints, at least when it comes to computing power per dollar,” he added.