How do changes in technology affect inflation calculations?

Advancements in technology can impact measured inflation in a few ways. One is through the introduction of new and improved products. As companies innovate and add features to offerings, their quality-adjusted prices may not rise as fast as the average prices of legacy products, lowering calculated inflation.

Additionally, new technologies can alter consumption patterns as new products and services rapidly gain market share, which further affects inflation.

Furthermore, technology can drive productivity enhancements that substantially reduce production costs. However, these savings may not affect inflation so much.

Finally, technology provides greater price transparency and shopping options for buyers, enhancing competition. This increased competition driven by technology puts downward pressure on prices and inflation.