It is tricky, but they try to apply what are called "hedonic adjustments." [1] If a new iPhone comes out that is way better than last year's iPhone, but it is the same price, then that's deflation! You got more stuff for the same price. Or even if your new plasma TV is more expensive than the old CRT, how do you compare them to decide whether the price level has increased or decreased while attempting to hold "quality" constant? They walk through an example like this on the webpage.

Of course it is very difficult to compare for entirely new product categories, though the good news is that brand new products likely are not a large portion of the consumption basket at the time they are introduced. So it shouldn't make that much of a difference. Otherwise, you are comparing each year to the next in a sort of "family resemblances" kind of way - maybe you can't directly compare a smartphone to something in the 1950s, but you can do incremental comparisons along the way.

[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...