Inflation Became a Tech Problem the Moment Software Started Eating Pricing Power

The CPI Stopped Measuring What We Actually Buy

The Consumer Price Index tracks the price of a basket of goods that increasingly doesn't reflect how anyone actually lives. Housing costs get smoothed into "owner's equivalent rent" while software subscriptions compound annually at rates that would make 1970s oil cartels blush. The official inflation rate says 3%, but my SaaS bill says otherwise.

We spent decades building technology that was supposed to drive deflation through efficiency gains. Instead, we built rent-seeking infrastructure that extracts predictable revenue streams. Every physical product became a service, every purchase became a subscription, and every price increase became "adding value."

The gap between reported inflation and lived experience isn't measurement error—it's category confusion. We're comparing apples to API calls.

Software Subscriptions Inflated Faster Than the Fed Could Track

Adobe Creative Cloud increased prices 50% over five years while the features I actually use stayed roughly the same. Microsoft 365 went from $100/year to $150 to $200 while adding collaboration features that mostly generate notification noise. The pattern repeats across every category: gradual price increases justified by features nobody requested.

The genius of SaaS pricing is that it inflates in ways traditional CPI baskets can't capture. A 10% annual increase feels reasonable compared to switching costs. Multiply that across 47 different subscriptions and suddenly the "low inflation" narrative breaks down.

Enterprise software inflates even faster because procurement departments measure cost per seat, not total cost of ownership. Salesforce increases prices 8-12% annually and calls it "edition upgrades." The actual product barely changes, but the contract value compounds.

Cloud Infrastructure Became Deflationary Until Lock-In Made It Inflationary

AWS pricing looked deflationary for years—compute costs dropped, storage got cheaper, bandwidth became abundant. Then companies built their entire stack on AWS-specific services and discovered that egress fees and proprietary integrations created switching costs measured in millions.

The cloud providers played a brilliant game: make the commodity stuff cheap while extracting rents on everything that creates lock-in. Lambda functions are cheap until you need VPC integration. S3 storage is affordable until you want to move it somewhere else. The sticker price deflates while the total cost inflates.

This is inflation by architecture. Every company that went all-in on cloud-native services signed up for compounding price increases disguised as "optimization opportunities."

The Fed Can't Control Inflation It Doesn't Measure

Monetary policy works by adjusting the cost of money, which theoretically slows spending and reduces demand. But software subscriptions don't respond to interest rate changes the way manufacturing does. Raising rates to 5% doesn't make companies cancel their Slack licenses.

The inflation that matters to knowledge workers lives entirely outside the Fed's toolkit. Housing costs in tech hubs inflate because supply is constrained and demand is inelastic. Software costs inflate because switching costs exceed price increases. Healthcare costs inflate because the market isn't actually a market.

We're running 1970s monetary policy on a 2024 economy where the biggest cost centers don't respond to traditional signals. The result is interest rate increases that crush manufacturing and construction while barely touching the sectors driving actual cost-of-living increases.

Inflation Metrics Optimized for an Economy That No Longer Exists

The CPI basket assumes you buy a car every few years, own a home, and purchase physical goods regularly. It doesn't capture the reality of paying $2,000/month for a one-bedroom apartment, $500/month in software subscriptions, and $400/month for health insurance that covers nothing until you hit a $5,000 deductible.

The methodology made sense when inflation meant the price of bread and steel. It breaks down when inflation means your rent increased 20% because a private equity firm bought your building, or your software costs doubled because the vendor moved to "consumption-based pricing."

We measure what's easy to measure rather than what matters. Goods deflate while services inflate, but services now represent 70% of the economy. The aggregate number becomes meaningless.

Tech Companies Discovered Pricing Power By Accident

The shift from perpetual licenses to subscriptions was sold as customer-friendly: pay less upfront, get continuous updates, scale as needed. What actually happened is companies discovered they could increase prices annually without losing customers because switching costs exceeded price sensitivity.

Notion went from $4/month to $8 to $10 to $15 while the product got marginally better. Users complained but didn't leave because their entire workflow lives in Notion's database. That's not market pricing—that's rent extraction enabled by lock-in.

The playbook is now standard: undercut competitors to build market share, create switching costs through proprietary formats and integrations, then inflate prices at 10-15% annually. Call it "value-based pricing" and watch margins expand.

The Real Inflation Story Lives in Total Cost of Ownership

A company running a modern tech stack pays for: AWS infrastructure, GitHub, Jira, Confluence, Slack, Zoom, Figma, various monitoring tools, security services, CI/CD platforms, and probably 30 other SaaS products. Each one inflates 8-12% annually. The aggregate inflation rate across the stack hits 15-20%.

Nobody measures this systematically because it's distributed across departments and budget categories. Engineering sees their AWS bill growing, marketing sees their MarTech stack expanding, sales sees Salesforce costs increasing. The total picture only emerges when you aggregate spend across the organization.

This is the inflation that actually constrains startups and small businesses. Not the cost of office supplies or manufacturing inputs, but the compounding tax of subscription software that's become mandatory infrastructure.

Inflation Became Structural When We Outsourced Everything to Platforms

The promise of platform economics was efficiency through scale. The reality is pricing power through network effects and switching costs. Every company that built on Stripe, AWS, Shopify, or Salesforce traded capital expenditure for operating leverage—and handed pricing power to the platform.

Platforms can inflate prices because customers can't easily leave. The integration work, data migration, and workflow changes cost more than accepting a 10% price increase. This is inflation by design, baked into the architecture of modern software.

We optimized for short-term efficiency and got long-term rent extraction. The platforms won, and inflation became a feature rather than a bug.