2. The Mirages of Hedonics: Quantitative Analysis of the Technological Innovation Contained in Inflation Rates

In economics, inflation is one of the most important concepts that affects almost all other notions in calculating their real values. In spite of its importance, the calculation of inflation is widely misunderstood. It is often considered as a straightforward formula, like those applied for population statistics or foreign exchange reserves. But, the fact is that statistical experts do make judgements with regard to which techniques they adopt when it comes to item replacement and quality adjustment. According to this judgement, the values of inflation statistics become different. Moreover, the judgements are co-ordinated at national level in order to avoid arbitral decisions, but not at international level. As a result, inflation statistics are calculated by different quality-adjustment techniques in countries. Technological innovation decreases the production costs of goods and services as well as their prices. In this sense, inflation cannot escape the influence of technical innovation. In this chapter, how technological innovation influences inflation statistics in different ways in East Asian countries is investigated.