Cheaper machines, cheaper products?
The link between automation and prices depends on competition, non-labor costs and how quickly the economy adjusts.
Lower labor costs do not necessarily translate into an equal fall in the final price.
What makes up a price?
A product's price reflects labor, capital, energy, raw materials, logistics, financing, taxes and profit. Automation may reduce some components while increasing investment in infrastructure and computing.
Competition determines the pass-through
In a competitive market, cost savings may pass to consumers more quickly. Where there are barriers to entry or market power, part of the savings may remain in corporate profits.
What about services and housing?
Even if certain software and services become cheaper, housing, land, infrastructure and energy may remain supply-constrained. It is therefore important to distinguish between the price of a specific product and the index of the entire consumption basket.
What does MacroVision examine?
The integrated model examines productivity, price and wage paths; the investment tests examine how the capital stock and financing may constrain the path. These are simulation assumptions, not a measurement of future price declines.
Limitations
This is not an inflation forecast or an estimate of the cost pass-through rate to consumers. Sector-level data, competition structure and capital costs are needed to calibrate such a mechanism.
Sources and transparency
This publication explains the existing research in accessible language. Its accounting example and scenarios are neither official forecasts nor investment recommendations.
What do you think?
In which sector do you think falling costs will reach consumers first?