This blog was originally written as my Editor’s Notes column in the DSCC Weekly Review (バックナンバーを一部進呈します).

This week I have been thinking about inflation. The stock market was down this week on concerns about the Federal Reserve raising interest rates to ward off inflation. Even though the discussion about a rate increase suggests that the earliest date for an increase would be the end of 2022, the notion of increasing interest rates and inflation hit stock prices which were at all-time highs.

While I am old enough to remember the high inflation in the US in the 1970s and 1980s, inflation has not been a major problem in the US or other developed economies for decades. For much of this century the opposite problem – deflation – has been a bigger concern. Interest rates were once so high that they inhibited borrowing – when I bought my first house in 1989, I paid 11.375% interest on my mortgage – but rates have been close to zero for many years, and some official rates in Europe are below zero.

Inflation has not been a problem for decades because of great changes in the world economy since the 1980s: the tremendous growth in world trade and especially the growth of China have allowed competitive forces to keep prices low. In products which rely on electronics, the efficiencies achieved by the semiconductor industry have always driven costs down.

I have seen this effect for my whole adult life in televisions. I can recall researching TV prices for a business school project in the early 1990s and learning that the US Consumer Price Index includes a sub-index for televisions, and where the normal CPI and most of its components increase over time, the CPI sub-index for TVs typically decreases over time.

The data from my business school project is lost, but I checked the US Bureau of Labor Statistics for the CPI, and they continue to have a sub-index for TVs with data back to 1996. The data is monthly, and in the entire 25-year period from January 1996 up to November 2020 there were only twelve individual months where the TV index increased, and only one instance when it increased two months in a row. There was never a 12-month period where prices increased, and the annual price declines ranged from -4% to -25%.

Whereas the overall CPI for that 25-year span increased from 154.4 in January 1996 to 261.6 in January 2021, an increase of 69% overall or 2.1% per year on average, the TV sub index went from 65.8 to 1.37, a decrease of 98% or an average of 14.3% per year price decline. This data supports my long-held contention that TV prices never go up.

Until now. The CPI TV sub-index hit an all-time low of 1.34 in October 2020 and has increased in six of the seven months since then. Readers of the DSCC Weekly Review and our blogs will quickly recognize the reason for the increase – the unprecedented increase in LCD TV panel prices. It has now brought an unprecedented increase in US TV prices – the US CPI TV sub-index for the previous 12 months turned positive in April 2021 for the first time ever, and the latest report shows that TV prices increased by 6% from May 2020 to May 2021.

While panel prices are undoubtedly affected by supply and demand, and we think they will go down in the second half, I think there is something larger going on about costs. For the entire history of the flat panel display industry, LCD costs have declined over time, as economies of scale, yield improvements, and shifts to lower-wage countries drove down costs in a highly competitive industry. By 2021, we may have reached the end of that road.

As we have reported, Corning increased display glass prices in Q2 2021 for the first time in this century, citing increased costs for glass manufacturing. The widespread shortage of semiconductors has led to both shortages and increased prices for display driver ICs. Other components such as polarizers have also been subject to shortages and price increases because they were unprofitable for even the most efficient producers in the industry.

In their operations, LCD makers will find it increasingly difficult to decrease costs – once yields are close to 100% they cannot go higher, and the costs of other inputs such as utilities and labor are likely to increase. While competitive pressure will continue to push LCD makers to seek cost improvements, the opportunities for big gains are no longer present.

What is true for the flat panel display industry may be true for the economy overall. The big trends that have kept inflation at bay have either played themselves out (like China’s effect on costs) or have reversed (like world trade). The world has enjoyed four decades of low inflation, but I think that streak is coming to an end.