How Cell-Phone Plans With Unlimited Data Limited Inflation

Economist traces almost half of the U.S. core-inflation slowdown this year to wireless services

By Ben Leubsdorf of the WSJ. Excerpt:

"A slowdown in inflation over the last couple of months seems to be coming from Americans’ smartphones.

Many private economists and Federal Reserve policy makers expected price growth would pick up this year, with unemployment low and the job market tightening. But core inflation—prices excluding the volatile categories of food and energy—rose just 1.9% in April from a year earlier, decelerating from 2.3% growth in January, as measured by the Labor Department’s consumer-price index. Core prices actually fell in March from the prior month, the first time that had happened in more than seven years.

Multiple forces are at work, including a glut of used cars pushing down vehicle prices and a deceleration in medical inflation. But Paul Ashworth, chief U.S. economist at Capital Economics, said in a research note this week that nearly half of the decline in core CPI inflation this year can be traced to a single item: wireless telephone services.

Cell-plan prices dropped 7% in March and fell an additional 1.7% in April, according to Labor Department data. From April last year, wireless service prices were down 12.9%, the largest decline in 16 years.

Mr. Ashworth attributed the drop to “the price war that has broken out among cell-phone service providers, with all the big providers now offering unlimited data plans at cheaper rates.”

Intense competition among cell-service providers like Verizon Communications Inc., Sprint Corp., T-Mobile US Inc. and AT&T Inc. has driven down prices for years and Verizon, the nation’s largest wireless carrier, in February followed its rivals in reintroducing unlimited-data plans.

As it happens, government statisticians in January had changed how they adjust available prices for cell-phone plans to account for features that improve quality. “In March, these procedures resulted in downward adjustments for many quotes based on changes in plans, largely in changes in data limits,” Bureau of Labor Statistics economist Steve Reed said in an email."