Inflation Now! Will A/V Prices Increase?

In case you haven't noticed, prices in the consumer world are creeping up. It's not yet a tsunami, but the signs are there. This should be a concern for everyone, and audio- and videophiles won't be immune from it. Some of the rising costs are due to unexpected events, such as the hacking of an oil pipeline, which might settle back in time. Others are due to government monetary policies, for better or worse in the unsettled time of Covid-19. Inflation is always produced when too much money chases too few goods. And there's no money tree in the back room of the Capitol in Washington. We're borrowing from Peter to pay Paul, but Peter can't object; he's just a printing press. The typical payback is inflation, a hidden tax on everyone.

Economics is a boring, black art, but it could inevitably affect our own little A/V corner of the wider world. Some A/V categories have a large profit margin and might absorb some price increases. I don't claim any inside knowledge of the precise margins involved, but in the retail trade a key figure is the number of points—the relationship between the cost of a device to the dealer and the retail list price. A common but not universal figure is 50 points. Your first reaction might be to assume that this means that the markup from dealer cost to the retail price is 50%. Wrong. It means that the dealer purchases the product from the supplier for 50% of the product's suggested retail price.

It's here that you might assume that the &%#$@ dealers are getting wildly rich with such margins. But he or she has to pay rent on the shop, which can be obscenely steep in major markets such as New York or Los Angeles, and isn't exactly cheap anywhere. Then there's the sales help, which expects to be paid in salaries, plus in some cases sales commissions. Then there are taxes, utilities, insurance (which I can guarantee you has skyrocketed in some areas, if it's still available, following the events of last summer), shrinkage (a catchall name for losses ranging from shoplifting to bookkeeping errors to employee theft), and the fact that markets are often seasonal. "Black Friday," for example, kicks off the Christmas selling season, a season in which businesses hope to move their books into the "Black" following the holiday rush, thereby digging their way out of a slow, perhaps losing ("Red") first eleven months of the year.

There are also unexpected events, for which 2020 set a new standard! This was not only from the pandemic, but also because a major microchip maker, AKM, suffered a devastating fire at its factory in Japan. The facility was apparently a total loss and stopped deliveries to industries that relied on AKM chips. You've probably heard that this has seriously affected auto production, but that news was aimed mainly at consumers who would instantly recognize that product category. The loss didn't only affect cars; consumer electronics have been impacted as well. And while replacement chips are available from other manufacturers, using them is rarely a simple, drop-in fix. Different chips, even those used for the same functions, often require significant circuit changes to make them perform properly. These changes can also affect the circuit board space allotted to the original chips, in some cases even to the point of having to redesign a board! And you can't just order new chips from a backup vendor today and expect to get them tomorrow. This chip-event was reportedly an issue with several brands of 2021 A/V receivers, and might have impacted TVs as well. Our 2021 TV review schedule has certainly been affected.

Oddly, however, sales of some categories of consumer electronics have thrived in 2020, as home-bound consumers bought new TVs and other A/V products to keep them from going stir crazy. Amazon has had a banner year with many brick and mortar stores closing (either for the duration or permanently) as consumers avoided going out to shop, either voluntarily or by edict. And the move from packaged media (DVDs, CDs, Blu-rays) to streaming has also (sadly) accelerated.

While serious inflation will affect all prices, it will impact them to varying degrees. Prices would inevitably rise before incomes do, which would generate higher resistance to discretionary purchases as opposed to food, energy, and housing. That, combined with economies of scale in manufacturing, might limit inflation in the A/V world. But don't count on it. Manufacturing, transportation, and retail costs will all increase, affecting all product categories.

I can't predict for certain that serious inflation is coming. I'm no economist, nor have I ever played one on TV. I hope I'm wrong. But I do remember the late 1970s when stagflation produced both economic stagnation and inflation. The latter peaked at over 13% in early 1980, and home mortgages peaked at 16% early in that same year. You say this can never happen again? I give you exhibit A: Covid-19, the most destructive and widespread world health event in a hundred years, combined with a national debt that's gag-inducing and eventually acts as a brake on overly ambitious government options. If you have any serious spending plans you've been putting off for the future, and can afford them, you might consider them now. It may already be too late for that new house. Mortgage rates are still low, though have you checked the price of lumber lately? But perhaps that new big-screen TV, or an upgrade to that long-in-the-tooth surround-sound system are high on your wish list.

COMMENTS
jeffhenning's picture

Thomas,
Our former glorious leader's tariffs didn't help matters and it seems that our current president isn't rolling them back anytime soon.

I'd expect prices to generally stay current with inflation as of now, but, given the contentious relationship the US has with China and that the preponderance of US audio equipment is manufactured there, anything can happen if things between our nations sour.

Billy's picture

Funny, we all see inflation today, yet the people in charge do not increase our wages (have not for 40 years!), I used to gag on how low 5.25% interest on my savings account was, today I would faint from the blessing that would be. We have inflation, yet no proper interest for savers, no wage bumps, and yet the 1% are getting ridiculously rich. Why is this? Do not want to open a political conversation because opinions are too crazy at this point,, but I think we all understand the reasons why we have what we have. Here is something we can all agree on (just not the people making out like bandits right now, though), our government should be promoting equipment manufacturing here. That way, we don't fall down when problems happen elsewhere. It would make good jobs here too. Of course, manufacturers would have to pay better wages then they do in third world sweat shops, but thats okay, let better people run them.I don't mind my taxes going to start new factories here, but I do demand that those factories pay a solid middle class wage. In the end, prices of goods will go up, like back when us Boomers were young, yet no one seemed to care, because the guy next door was employed just like you, and you both were able to afford stuff because you earned a decent wage. Plus, we would buy with cash, not credit. They call them the good old days, for good reason.

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