Online shopping was once immune to inflation. Not anymore

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Through economic booms and recessions, e-commerce has long been virtually immune to inflationary pressures. Average online prices fell each year between 2015 and 2019.

But Covid has put an end to this once reliable trend.

Online prices jumped 3.1% year-on-year in July, according to a report released Thursday by Adobe. Of the 18 categories identified by Adobe’s Digital Economy Index, all but six saw their prices increase last month. Price increases were most dramatic in July for online clothing, over-the-counter drugs and sporting goods.

“Before Covid, I don’t think there was any inflation. It was exclusively deflationary,” Austan Goolsbee, the former Obama adviser who helped Adobe develop the index, told CNN.

This is not a month-long glitch. Online prices started to rise shortly after the outbreak of the pandemic in March 2020 and this trend has continued.

Adobe found that online prices rose 2.3% in the 12 months ending in June and accelerated in July.

This marks a clear reversal from the historic pre-Covid trend. Between 2015 and 2019, online prices fell an average of 3.9% each year.

Why is this important

Goolsbee said that the fact that online inflation is higher than normal suggests that the next monthly inflation reports released by the U.S. government may not show inflation is cooling down just yet. It would be a disappointment to consumers, not to mention the Federal Reserve, the White House and the many economists who argue that these price spikes are only a temporary phenomenon.

“The Fed should definitely pay attention to what’s going on online,” said Goolsbee, who added that he remains on “Team Temporary” when it comes to the inflation debate.

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Inflation online is a big deal as falling e-commerce prices are often cited as one of the main reasons inflation should eventually return to healthy levels.

It has long been cheaper to buy things online than in local stores. Part of this is because shoppers can quickly and easily find which sites have the best deals. Consumers don’t even have to leave their couch to hunt for bargains.

Yet in July, annual prices rose sharply for online clothing (15.3%), over-the-counter drugs (5.7%) and sporting goods (3.5%), Adobe said. Other categories have returned to their deflationary tendencies. In July, online prices fell for computers (-7%), toys (-4%) and office supplies (-2.5%).

But even in areas where prices have come down, they don’t do it as fast as usual. Adobe said online electronics prices fell 2% in the 12 months ended in July. This contrasts sharply with the historical average drop of 9% in online electronics prices 2015-2019.

Adobe has been tracking prices online every month since 2014, but didn’t start releasing e-commerce inflation figures until last month. Previously, Adobe shared this data almost exclusively with government agencies and academics.

“Everything goes up”

So why has inflation infiltrated online shopping?

First, e-commerce does not exist in a vacuum. It makes sense that online prices reflect the larger inflationary environment.

“The price of everything is going up,” Goolsebee said.

Government-measured inflation, which includes online shopping, has been scorching lately. Consumer prices in the United States climbed 5.4% in the 12-month period ended in July. This was on par with June for the fastest annual consumer inflation since 2008.
Second, Adobe blamed online inflation on supply chain bottlenecks. It’s the same challenge that has contributed to delayed furniture shipments and shortages in recent months of everything from steel and wood to computer chips. After being sidelined by Covid, supply is having serious difficulty catching up with strong demand.

Demand is another factor here. The pandemic has closed physical stores and made some shoppers nervous about going to grocery stores. This has driven even more demand for online shopping – a category that was experiencing explosive growth long before Covid.

The blame game on inflation

Fed Chairman Jerome Powell has always said inflation is likely “transient,” cooling off as the economy reopens. He pointed to the dramatic increase and subsequent collapse in timber prices as evidence. Powell acknowledged, however, that there is a risk that the Fed (and investors in general) get it wrong and that inflation will persist longer than expected.

CEOs of Black rock (BLACK) and JP Morgan (JPM) recently said they didn’t think inflation would be temporary.
The inflation debate has turned into political football, with Republicans attacking Democrats for rising prices for groceries and back-to-school supplies.
"More and more alarmed." Joe Manchin attacks the Fed over inflation

“The Democrats’ reckless economic policies have caused a massive price spike, and parents across the country are feeling the sting as they send their children back to school,” NRCC Chairman Tom Emmers said in a statement. press release Wednesday.

However, as CNN has previously reported, it is misleading to suggest that Covid-19 stimulus packages are the only reason for the price hike.

Goolsbee, a veteran of the Obama administration, has rejected attacks on inflation and remains steadfast in his belief that inflation will subside soon enough.

“Inflationists have the problem that every time a Democratic president has offered to do something, they have said there is an imminent danger of hyperinflation,” Goolsbee said, highlighting warnings of rapid price hikes. prices caused by the 2009 stimulus package and Obamacare. . “They have been systematically wrong time and time again.”

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