What They Say
DSCC has published a blog article that highlights the dramatic drop in US TV set pricing in recent months. The article includes the chart (below) that shows the ‘TV sub-index’ which tracks TV prices compared to the overall price index.
Prices rose last year for the first time ever, but have fallen back by even more this year and DSCC said that the August price decrease of 3.1% represents a rate of -32% on an annualized basis. Bob O’Brien has looked at the regression equation from the data and said that it implies that when panel prices are flat Y/Y, TV prices will decline by 12%. For every 10% decline in panel prices, an additional 2% decline in TV prices will occur.
His analysis suggests that prices for sets will continue to decline to the end of this year, although he is not convinced that further price reductions will drive a boost in sales volume.
What We Think
The price reductions might not help volume, but they could boost the sale of larger priced sets. People have a sense of ‘how much should I spend on a TV’ and that is relatively fixed over the short term. Lower prices should mean that they can trade up in size, which should mean more LCD area being absorbed, which would be a good thing, but is unlikely to be enough on its own to turn around the current over-supply and negative part of the Crystal Cycle. (BR)
The July 2022 overall CPI stood at 296.2, down slightly from July but up 8.3% from August 2021. This means that a standard basket of goods that could be purchased for $100 in 1982-1984 would cost $296.17 for a consumer today. The CPI for TVs in July 2022 was 1.221, which means that a (hypothetical) TV that cost $100 in 1982-1984 would cost $1.22 today. On a M/M basis overall prices were flat while TV prices were down 3.1%.
The chart here shows the Y/Y change in the CPI, which readers may recognize as the more familiar headline definition of inflation, and in the CPI sub-index for TV. In the period from 1997-2021, the CPI for TV has spent nearly the entire flat panel display era below -10%. For a period of more than ten years from 2005 to 2017, the CPI for TV was always below -10% and often below -20%.
Y/Y % Change in US Consumer Price Index, 1997-2022
The general CPI in June 2022 increased by 8.3%, while the CPI sub-index for TVs in June 2022 decreased by 19.8% Y/Y, the lowest value since January 2020. TVs in the US are again at their lowest price ever, about 9% lower than the prior low of 1.340 set in October 2020. TV inflation peaked in August 2021 at 13.3% which was the highest level ever, but it has dropped rapidly in the year since then. The August price decrease of 3.1% represents a rate of -32% on an annualized basis.
As you might expect, TV prices are related to LCD panel prices. The unprecedented increase in TV prices in 2021 was a direct result of the unprecedented increase of more than 100% in panel prices. The pattern of TV prices (TV CPI) follows the pattern of panel prices (PPI) with a lag of 5 months. A regression of these two parameters gives the following relationship:
TV CPI Y/Y % = 0.212 * (PPI Y/Y%, T – 5 months) – 12%
The regression equation implies that when panel prices are flat Y/Y, TV prices will decline by 12%. For every 10% decline in panel prices, an additional 2% decline in TV prices will occur.
Y/Y % Change in US TV Prices and LCD TV Panel Prices
Because of the time lag, the regression equation implies a prediction of TV inflation for the next five months, and as shown on the chart it is expected to go even lower, hitting -25% just in time for the US holiday season. As shown on the first chart, TV inflation (or more appropriately said, deflation) has rarely reached such a level, only in 2007 and 2009.
Inflation for TV prices in the US may not have a strong effect on demand, based on the historical example – past examples of TV deflation did not lead to a surge in demand in the US. However, now that a full year has passed since the economy started opening up, lower TV prices might help the US increase Y/Y sales numbers.
As summer turns to fall and we approach the holiday season, it looks like a good time to buy a new TV.
