“technology-driven innovation could eventually bring prices down”

This is from an interesting piece by Rana Foroohar writing in the FT last month:

Why innovation could stop inflation

Technological progress may be the most powerful disinflationary force in a changing world

Consider the clean energy transition. Already, demand for electric vehicles is pushing up the price of commodities such as copper, lithium, nickel, and cobalt. Green vehicles and power plants are much more metal-intensive than the technologies they are replacing. As more companies and nations move towards a carbon tax and seek to limit fossil fuel production, energy prices may rise further in the short term. But the wider timeline is, of course, what matters. While a fast transition to a cleaner world will create some inflationary pressure, it will dramatically cut the cost of climate-related disaster in the longer term.

What’s more, technological innovation itself eventually lowers costs. Morgan Stanley data show that, short-term spikes aside, commodity prices have trended down for 200 years. That’s because every time one energy source became too expensive, a new one was invented to take its place. We might be heading into a cold and expensive winter. But given the plummeting costs of renewable technologies such as solar panels and wind farms (and increasing public and private investment in them) there is good reason to hope that, with time, the final destination could be a much better and cheaper place — one that would put a dent in some of the 1970s stagflation analogies.

… the fact that the global economy has become somewhat more fragmented over the past couple of years is also an opportunity for technology-driven innovation that could eventually bring prices down. Think about vertical farms that grow produce minutes from where people eat it, telehealth and virtual education platforms that eliminate travel costs, and 3D manufacturing that cuts through complex and far-flung supply chains. These are just a handful of the many new technologies that are currently booming.

The change such innovation could bring is arguably the only major disinflationary trend right now. But it may prove to be the most powerful.

rana.foroohar@ft.com

Why innovation could stop inflation | ft.com

picture: 3-D printer: https://pxhere.com/en/photo/1570325