What if the loss of product quality is added to inflation? In the US it would be 10%

The level of inflation is skyrocketing around the world. In the specific case of the US, the latest calculation is the highest in four decades: in January, the CPI reached 7.5% in the country. However, if a calculation of the loss of quality of the products could be included, the increase in prices would reach 10%.

Researchers at the University of Michigan publish a quarterly customer satisfaction index to measure how satisfied consumers are with the goods and services they purchase. The latest edition came out earlier this week and points out a quality decline of 5.2% since 2018a percentage that grew especially from 2020, with the arrival of the pandemic.

Including the quality of the products in the measurement of inflation is not an easy task because there are different variables. There may be cases where the price of a product has remained largely unchanged but its quality has improved (for example, a computer that does not change in price but does include technological advances). In this case, in a certain sense the product would be considered to have become cheaper. But the reverse can also happen, if the price does not change but the product loses quality, it has become more expensive.

Reflect ‘hedonic changes’ in the CPI

It is the experts at the Bureau of Labor Statistics who calculate the consumer price index. At each measurement, collect Bloomberg, try to incorporate a quality adjustment to reflect the so-called ‘hedonic changes’. The problem is that they only do it on 40 of the 273 items in the basket of the purchase that makes up the IPC, 13% of the total.

The latest findings from Michigan researchers in the recent report “suggest that actual annual inflation is likely to be around 10%” if prices were to reflect declining quality.

Claes Fornell, founder of ACSI and professor emeritus of business administration at the University of Michigan, told Bloomberg that the fall in satisfaction is “more pronounced in services”. This is mainly explained by the pandemic, which further increased “product unavailability, supply issues, and labor shortages.”

Specifically, the ACSI report points out that some of the greatest quality losses occurred in the consumer electronics, affected by problems in the supply chain; in hotels, due to the lack of workers, especially cleaning workers; and in the video transmission, due to the overloads of the system due to the avalanche of people who, under confinement, saturated the platforms.

Note that the perceived quality sentiment indicator is based on personal opinion and is therefore more vague than the Bureau of Labor Statistics’ analysis of the specific characteristics associated with each item.