How Inflation Is Affecting Consumer Electronics


Created by C. Lentz from a Freepik image.

Throughout the entirety of 2022, unusually high inflation has been a harsh reality, hitting a 40-year high in June of this year. The rate of increase in the prices of goods and services has never been higher, and though inflation dropped to 8.3% in August from July’s 8.5%, economists say this isn’t necessarily an indicator of economic healing. According to Sarah House, a senior economist at Wells Fargo Economist, “…it will take several more soft inflation prints before the FMOC [Federal Open Market Committee] begins to feel confident that it is getting price pressures in check.”

Though perhaps the most infamous result of inflation, the price of gas is not the only inflated commodity that radically alters consumer purchasing behavior. As technology is becoming more and more a part of everyday activities, newer and more efficient electronics are constantly being produced and sold. This results in consumer electronics being “among the most vibrant parts of the US economy,” according to a research paper published by the Consumer Technology Association. Unfortunately, this means that these products are largely being affected by inflation, proved by the announcement of semiconductor prices for 2023. As a key component of most things we use in our daily lives (including toasters, electric toothbrushes, phones, and cars), semiconductors and their prices force similar increases down the value chain.   

Unfortunately, there is no easy solution to solving the semiconductor supply issues. The majority of the additional fabrication plant capacity will be accommodating manufacturing process nodes. In these nodes, the steeper costs can be regained through higher profit margins. This leaves limitations on the older process nodes until newer products take over the advanced nodes, subsequently reducing demand. As this happens, additional space for older nodes becomes available. Essentially, with so many different kinds of products in so many different fields (medical, automotive, computing, etc.), using these semiconductors for 5 – 10 years, it will take quite a while for manufacturing capacity to open up for new chips.

In addition to manufacturing, raw materials are a huge factor in determining the availability and, down the value chain, the price of the product. Materials used to manufacture semiconductors in addition to shipping and labor are all found in China, and with the frequent shutdowns in China due to COVID, chip manufacturing is succumbing to the power of inflation. COVID shutdowns aren’t the only conflicts that negatively affect the global economy, however. International sanctions against Russia due to the Ukrainian conflict have significantly disrupted semiconductor raw material supply chains, resulting in manufacturers that are struggling to produce enough supply to meet demand. In some cases, original equipment manufacturers (OEMs) have found alternate suppliers of these natural resources outside of Eastern Europe, but for the most part, switching suppliers is a costly and time-consuming job. 

Unfortunately, it’s unclear how long it will take for these artificially high electronics prices to alleviate. After all, there are more factors that contribute to high prices than just international supply chain issues, the most prominent of which is expansionary fiscal policy. In addition to this, it is almost impossible to predict how long Beijing will continue to enact the “Zero COVID” policy, or how long international sanctions will be in effect. Basically, with the global (and especially American) economy being in an uncertain, current state of high prices, now probably isn’t the best time to buy a car, graphics card, TV, or anything with a semiconductor in it. Although some purchases are necessary, there is no more important time to think critically about things you buy and evaluate if you can afford to wait for a better economic state to enact big purchases.