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Beyond Inflation 

A man surprised how much inflation effected the price of groceries

While inflation’s effect on the overall economy is undisputed, its effect on consumer electronics sales may be overblown. Downward pricing pressure in some categories, an easing supply chain, and a post-pandemic slow-down in demand for some products may have a more profound effect on items like TVs and laptops in the coming months. 

Certainly, the 500-pound gorilla in the overall retail market is still inflation. For example, consumer prices—excluding food and energy costs—rose a staggering 6.6 percent in September compared to a year ago. That is the fastest rate of inflation the U.S. has seen in 40 years. 

So with prices for food and utilities continuing to rise, consumers are throttling back on non-essentials like new clothes and shiny electronics. Indeed, sales of consumer electronics and white goods fell 0.8 percent in September. The question is, will these trends continue? 

“Inflation has definitely impacted consumer electronics sales,” says Avi Greengart, lead analyst at Techsponential, “but the impact is selective and is often dwarfed by other factors.” 

Several analysts agree that other factors are playing a more important role in CE sales. Many consumers splurged during the pandemic on 4K TVs and laptops, for example, just as supply chain problems reduced inventories and drove up prices. But this year, the trend has reversed. While the price of many essentials skyrocketed, the price of items such as big-screen TVs fell by as much as 12.7 percent according to the Consumer Price Index this past summer. Even computer prices fell by 1 percent, according the report. Some analysts expect to see further price erosion. 

“We’ll likely see some very strong discounting over the holidays and into 2023 on high-end TVs,” said Mark Vena, principal analyst at SmartTech Research. “Manufacturers cannot afford to have a slow holiday sales season as that’s the part of the year when typically most sales occur.” 

And while inflation continues to impact overall PC sales, including laptops, Vena doesn’t believe it’s the core reason for slowing sales. “The PC market has been contracting because it’s no longer benefiting from pandemic sales and the work-from-home effect,” he points out. “And we’re not likely to see a repeat of the kind of historic buying binge seen in 2020 and 2021 to upgrade systems any time soon.  

“PC video game and TV sales soared,” concurs Greengart, “and now there’s a bit of a hangover. Prices are actually down in these categories and supply is up.” 

One company in the midst of the supply chain is 3M. It provides adhesives and electronic films and coatings to high-tech customers like smartphone makers, so it’s considered a bellweather of things to come. In its most recent investor conference, 3M said it expects to see continued “softness” in smartphone, tablet, and TV sales. The company also agreed that supply chain issues seem to have largely abated. So there will be some pressure to offer discounts to boost sales. On the other hand, retailers should at least be able to count on a steady stream of products. 

Overall, analysts at AlixPartners expect consumers will continue to spend. The National Retail Federation recently forecast that holiday retail sales during November and December will grow between 6 percent and 8 percent over 2021 to between $942.6 billion and $960.4 billion. But at the same time, the middle income shoppers may get squeezed. In order to offset price increases in food and services, mainstream consumers will look increasingly to bargain retailers like Walmart for deals on countertop appliances and TVs. (Walmart declined to comment on expected trends for this Dealerscope story.) Meanwhile, affluent customers will continue their discretionary spending, impervious to inflationary trends elsewhere.  

As for the consumer buying hangover, it seems to extend into all corners of high-tech goods. At least one major American bicycle brand that did not wish to be identified told Dealerscope the market may be temporarily saturated. After a couple of years of surging demand, there’s now a huge back inventory of ebikes.  

Nevertheless, there are some CE bright spots that analysts expect will hold up well over the next few months, specifically in accessories and peripherals.  

“Peripheral devices seem to be immune—to some extent—to the impact of inflation,” notes Vena, because users can’t delay critical purchases for items like printers and webcams.  

And while smartphone sales are down globally, says Greengart, “Apple iPhone sales are up.” While Apple expects to see slower growth in iPhones sales, its sales numbers demonstrate that when they need a new phone, consumers are willing to invest in premium products, says Greengart. 

In spite of these countervailing forces, the Federal Reserve’s three-quarters of a point hike in interest rates in November will no doubt increase the cost of credit card debt and cause some consumers to shy away from big purchases over the holidays and through early next year. Many economists expect the Fed’s move will be the last hike this year and for some time to come—unless inflation rears its ugly head, and then all bets are off.