Record Inflation Will Jack up the Price of Your Next Phone

Record Inflation Will Jack up the Price of Your Next Phone

If you’re already struggling with pain at the pump and rising prices of everything from ramen to rent, buckle up for some more unpleasant news. The fastest inflation increase in four decades means a year of pricier phones, laptops, and other gadgets as well.

While just about anyone with a wallet and access to the internet knows inflation has been ticking up for the better part of a year, a new Labour Department report released Tuesday solidified the severity of the issue. According to the department’s monthly Consumer Price Index report, inflation rose a whopping 8.5% in March. That’s the fastest inflation rate increase since 1981. Add that to an already rocky global supply chain poised for a new round of disruptions, and consumers are left with an uncomfortable and expensive road ahead.

While it may take time for everyday gadget buyers to feel inflation’s full squeeze, there’s already some evidence of significant price increases for certain electronics. According to a Canalys report released this week, global PC shipments in Q1 2022 fell year-over-year for the first time since the same quarter in 2020. Despite a 3% shipment fall off, worldwide PC revenues actually increased a whopping 15%. In other words, PC makers are bringing in more cash even as they sell fewer products than before.

“Seismic global events have had a negative impact on both the demand and supply side, hitting the industry at a time when consumer and education purchases have both naturally slowed after the highs of last year,” Canalys Senior Analyst Ishan Dutt writes. “The war in Ukraine has exacerbated the inflationary environment in major markets by driving up the price of commodities, ranging from oil and gas to metals to foodstuffs.”

That decrease in PC shipments marks the first slowdown following seven consecutive quarters of growth driven partly by the pandemic prodded pivot towards remote work. Prices of notebooks have been increasing at least as far back as last October, according to IDC Program Vice President Ryan Reith. In an interview with The Register back in October, Reith claimed average notebook prices climbed up to $US820 ($1,138), up from $US790 ($1,097) the same time the previous year.

All these price increases start early on in a device’s long path towards your doormat. Last year, TSMC, which dominates around half the global semiconductor chip foundry market, announced it would increase prices by as much as 20%, its single largest increase in a decade. Now, Nikkei Asia notes, other chipmakers have followed suit and raised their own prices, in some cases even surpassing TSMC’s price tag. While some of the largest cash-rich brands like Apple can manoeuvre their way around some of these price hikes and offset costs, most smaller firms end up inevitably turning those increased prices over to their eventual customers.

There’s good reason to believe similar price increases could reverberate throughout the smartphone industry. A recent report from Counterpoint Research determined the average smartphone price worldwide increased from $US287 ($398) in 2020 to $US308 ($428) in 2021 due to a mix of supply chain delays and inflation. Counterpoint expects some level of price increase for 2022 as well and predicted some phone makers may end up deprioritizing more affordable budget phone models to focus on glitzier, more expensive ones with higher profit margins. That’s all well and good for device makers, but not so good for everyday people trying to get their hands on a new phone for a reasonable price.

But wait, there are more problems where that came from

Unfortunately for anyone even remotely interested in buying a new device in the near future, inflation isn’t the only issue to worry about. Just as critical component supply shortages appeared on track to recover from a pandemic-induced shortage, Russia decided to invade Ukraine. Within a month of crossing the border, Russia had forced Ukraine’s two leading neon suppliers to suspend operations. That’s a major problem for gadget production, since neon is critically important to semiconductor chip manufacturing. Around half of the world’s semiconductor-grade neon originates from those two Ukrainian suppliers.

The pandemic’s not done stirring its shit bucket either. While most cities in the U.S. are ditching the last vestiges of covid-19 precautions, the same can’t be said for China and Taiwan, where a resurgent outbreak has forced businesses and even entire cities like Shanghai to shut down. On Wednesday, Reuters reported that more than 30 Taiwanese companies, including many that make electronic components, said they would shut down operations for at least another week because of the virus. Pegatron, a Taiwanese company responsible for producing around 20-30% of Apple’s iPhones, announced it was shutting down production in Shanghai.

The combined effect of inflation, war in Europe, and pandemic-related supply disruptions will likely translate to even higher prices in the not-too-distant future. All of this could potentially get way worse and fast. A prolonged and worsening war in Ukraine could make bringing neon facilities back online even more challenging, while new variants of the virus, however unlikely, could risk derailing the production of key components even further.

Even in the best case scenario of the war in Ukraine, the pandemic, and inflation, all signs are pointing to price increases for gadgets. The only real question is just how steep those will be, and for how long.

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