As Americans celebrated another year of economic growth with virtually no inflation, a contradictory current powered the boutique-bound: voluntary inflation. It simply cost more to be properly rich this year. You want to make a phone call? While everyone else’s telephone rates held steady, the rich were compelled to buy digital phones, if not video models. New home? While housing costs nationwide did their best to recover from their long slump, housing in wealthmaking ghettos like Seattle hit the roof, rising as much as 20 percent. Dinner? For the first time since it started watching prices a decade ago, the 1998 Zagat Restaurant Survey for New York found that the price of an average meal rose faster than inflation. A record 103 restaurants set gourmands back more than a hundred bucks for dinner for two. This year the Starbucks phenomenon–buddy, can you spare $3.69 for a really good cup of coffee?–splashed itself across the whole realm of spending. The cost of living may have held steady, but the cost of living large skyrocketed.
Bill Gates set the standard for voluntary inflation. Gates has long been notorious for flying coach, and for expecting his executives to do the same. But this year he found a friendlier way to fly: by private twin-engine Challenger 604 jet. Price tag: about $21 million. Though this might seem a tidy sum, Microsoft spokeswoman Pam Edstrom emphasized that it was really a practical expenditure. ““It has just become too difficult to map his schedule to the commercial-airline schedule,’’ she told The New York Times. This is the blueprint for the new conspicuous consumers: they swear they’re not after showy luxury–that’s so 1980s–but functional value, at any cost. As the Neiman Marcus catalog promises in its pitch for the 1998 Sony Limited Edition GMC Suburban, ““Owners will be invited to attend special Sony entertainment events throughout the coming year.’’ Don’t think of this as $72,975 for a big station wagon; think of it as $72,975 for a practical family tank plus free tickets to ““As Good as It Gets.''
Voluntary inflation plays into what economists have called a two-tiered or ““Tiffany/Wal-Mart’’ market: the booming economy has hugely enriched just the top one fifth of American households, leaving the masses to buy discount. As fewer individuals control a greater part of the nation’s wealth, manufacturers can’t afford to raise their prices; it would leave the majority of their customers behind. ““In staple packaged goods, there are actual price reductions and rollbacks,’’ says Jeffrey Hill, managing director of the Meridian Consulting Group. ““The average cost of cereal is declining, toilet tissue, Kleenex, tobacco.’’ But of none of these is the good life born. So companies have added higher-priced luxe lines or pushed existing lines–like the Gap’s Banana Republic–further upmarket. The great advantage of this tonier stuff is that it makes a virtue of costing more, not less. No one buys a Rolex for its discount. As marketing strategist Al Ries notes, ““How else am I going to let someone know I’m successful?''
For retailers and manufacturers, this public unwillingness to quit old, inflationary habits is a free gift. Who wants to sell the humble Braun Oral-B Interclean electric toothbrush (about $60) when buyers will shell out $130 for the Optiva Sonicare, which beeps every 30 seconds to remind you to brush the other side of your mouth? But for the newly enriched, voluntary inflation can be a drag. Just when you finally make your first million, you find a million doesn’t go as far as it used to.
This is the whine of 1997: it’s not easy being rich. To follow, may we suggest a 1989 Chateau Latour? Its auction price recently jumped 45 percent, to $164 a bottle, in just three months. But hey, that’s the price you pay for being able to pay it.
