NCPA - National Center for Policy Analysis

Technology Battling Inflation

May 25, 1998

Some economist see the growth of the high tech sector as the principal reason why today's annual inflation rate is only 1.4 percent.
  • They attribute 30 percent of economic growth to high-tech.
  • With the prices of computer and communications products falling so rapidly, they decline pulls down the general inflation rate, they argue.
  • Factoring in the cost savings emanating from higher worker productivity and lower costs for high-tech products, they estimate the process lowers inflation by one half of a percentage point.

Some economists point out that historically, in periods in which innovation fuels strong economic growth, inflation has remained quiescent. For example, prices declined for long periods beginning in the 1870s due to new manufacturing technologies and the growth of overseas markets, and again in the 1920s with the widespread introduction of electricity.

Today's high-tech influenced growth may continue. Economists point out that business spending on information technology jumped at an annual rate of 26 percent in the first quarter of this year, compared to a 9 percent for the same quarter last year.

Source Michael J. Mandel and Christopher Farrell, "The Force That's With Us," Business Week, May 25, 1998.

 

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