Tech-driven deflation: Codes cutting costs

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  Quantumrun Foresight
• December 26, 2024

Insight summary

As technology advances, automation and artificial intelligence (AI) are driving down the costs of goods and services across industries. This trend could lead to lower consumer prices but also create challenges like job displacement in sectors that rely on manual labor. Companies may also benefit from increased efficiency, while governments may need to adjust policies to address the social and economic impacts of a more automated workforce.

Tech-driven deflation context

Tech-driven deflation is the process by which technological advancements lower the cost of goods and services. This trend is primarily driven by AI, robotics, and automation innovations that help companies reduce labor and operational expenses, enabling them to offer more affordable products. For instance, Miso Robotics' "Flippy" bot can replace human workers in fast-food chains, saving businesses like burger joints nearly USD $100,000 per year in wages and other costs. Similarly, pizza chain Little Caesars is automating pizza assembly with a patented robotic system, allowing the company to reallocate human labor to more complex tasks. These advancements in automation signal a shift toward reduced prices as a direct result of technological efficiency, a phenomenon increasingly visible across sectors where manual labor was once indispensable.

In addition, AI is disrupting traditional software development by making programming more accessible and affordable. Generative AI tools, such as GitHub Copilot, have automated large portions of coding tasks, with nearly 46 percent of new code being AI-generated, according to GitHub's 2024 report. As AI-powered tools enable businesses to develop custom software solutions more affordably, companies may no longer need to invest as heavily in packaged software products from established providers. The redistribution of spending from software products to generative AI solutions may affect the market value of longstanding software companies. 

On a macroeconomic scale, tech-driven deflation is poised to influence global markets, affecting not only businesses but also consumers and economies. As seen in China, where consumer prices fell by 0.3% and producer prices dropped by 0.2% in November 2022, even minor deflationary trends can impact economic growth and investor sentiment. Furthermore, AI has pressured subscription-based industries, as virtual assistants may help consumers find better deals or automatically cancel underused services, reducing revenues for telecoms and streaming providers. Additionally, as AI-driven solutions continue to grow, the impact on employment could become pronounced, with lower-skilled jobs potentially replaced by machines. 

Disruptive impact

As more businesses adopt automation and AI, consumers could benefit from lower prices in retail, food services, and healthcare. For example, AI-driven healthcare tools might reduce the cost of diagnostic services, making them more affordable for patients. However, individuals working in industries heavily impacted by automation, such as fast food or customer service, may face job displacement. As a result, people may need to adapt by reskilling or shifting to roles that require more complex, creative, or interpersonal tasks that machines are less capable of performing.

Companies that integrate AI and automation into their operations could significantly cut costs and improve efficiency, allowing them to remain competitive in a rapidly evolving marketplace. For example, generative AI in software development can enable businesses to create custom solutions faster, giving them a competitive edge. However, smaller companies may struggle to keep up with the initial investments in advanced technologies and face difficulties competing with larger corporations that have already integrated these tools. Additionally, industries that rely on human labor for competitive advantage, such as high-end restaurants or bespoke services, may see reduced demand as AI-driven alternatives become more efficient and affordable.

Meanwhile, governments may need to adapt their policies and investment strategies to address the broader societal impacts of tech-driven deflation. They could support this trend by investing in education and training programs that prepare the workforce for roles that are less likely to be automated. However, they may face pressure to regulate the adoption of AI to mitigate job loss and protect vulnerable populations. For example, policies could include unemployment benefits, job transition programs, and tax incentives for companies that invest in reskilling employees. 

Implications of tech-driven deflation

Wider implications of tech-driven deflation may include: 

• Companies shifting to on-demand workforces, reducing the need for full-time employees and providing flexibility but leading to less job security for workers.
• Cities adjusting infrastructure to accommodate fewer manual labor jobs, leading to increased demand for retraining centers and educational programs focused on tech skills.
• The widespread use of AI in environmental monitoring reducing human intervention in areas like agriculture, resulting in more efficient use of natural resources.
• Companies introducing personalized AI-driven consumer experiences, making shopping more tailored but raising concerns over data privacy and security.
• Political debates intensifying over how to regulate AI and automation in labor markets, prompting governments to enact policies that protect workers while fostering economic growth.
• Increased automation in industries such as logistics and manufacturing lowering production costs but causing a decline in low-skill job opportunities.
• Governments focusing on retraining initiatives to ensure a more adaptable workforce, which could help reduce unemployment but require significant public spending.
• Automation improving environmental outcomes by optimizing energy use in transportation and manufacturing, leading to a reduction in carbon emissions.

Questions to consider

• How might increased industry automation impact your current job or future career prospects?
• What steps could you take to adapt to a workforce where AI plays a growing role in everyday tasks?