According to the January issue of “Wired” magazine luxury items are more affordable than ever. They picked several items and adjusted their prices for inflation and found that in inflation adjusted dollars many luxury items cost less than the did 10 or 25 years ago.
How can that be? According to “Wired” the price to charter a plane for an hour was $3,016 in 1980 but was only $1,850 in 2004, a decrease of 39% over 24 years.
A BMW series 3 was $40,945 in 1995 and is $30,840 now a decrease of 25% over 10 years. Other prices they compared were Dinner at the 21 club $114.66 in 1987 and $87.50 in 2004 for a 23% decrease over 17 years. LaPavoni espresso machine $1,242 in 1975 and $550 now. QE2 world cruise $343.06 per day in 1980 45% less today at $187.14 per day.
They showed several other examples including a Viking stove down 12% over 14 years and a Hair transplant down 88% over 18 years. Others included a Mink coat down 19% over 19 years and a Time share in the Hamptons down 32% over 19 years.
So the question arises why would Luxury items be falling in price (in “Real” dollars) while ordinary items are rising?
According to the “Wired” article… as more people move closer to being rich than ever before, economies of scale reduce the cost of luxury items more than ordinary items.
Interestingly, I got a letter from a reader not too long ago, complaining about the increases he was experiencing in “luxury” items like dock fees and parts for his boat.
Based on the items and the location he mentioned I think his costs are rising because of a lack of competition. If there is only one dock you pretty much have to pay what the owner is asking, as long as he has sufficient demand. If demand is increasing because there are more boat owners, perhaps the “Wired” article is right about the increase in the ranks of the near wealthy!