Deflation is not the consequence of technology

AS we stand on the brink of the fourth industrial revolution, the technological change can seem daunting - self-driving cars, intelligent machines and robots are everywhere. There is an idea that global inflation rates will collapse as new technology increases efficiency and lowers costs. The Apple iPhone 7, in short, could cause global deflation.

This idea is wrong. It is based on confusion between the price of a single item, and the prices of the multiple things that form inflation. If the price of one thing is changing, that tells us something is happening in the market for that thing; that the efficiency of supply has changed as a result of technology, for instance. Policymakers should not normally worry about a price change in a single market. If the prices of multiple things in …