Online retailers fuel inflation in reversal of years-long trend

Ecommerce sites have become contributors to rising inflation, bucking a years-long trend and heralding the prospect of higher prices and fewer discounts on a wide range of products this holiday season.

Online retailers such as Amazon had been pushing down prices for years, challenging bricks-and-mortar rivals to follow. That trend has reversed over the past 15 months, according to a report published on Wednesday by Adobe, the software company, which tracks data from billions of online transactions.

“You used to have this thing that was a deflationary influence,” said Taylor Schreiner, director of Adobe Digital Insights. “Suddenly it’s a cause of inflation rather than alleviating it.” 

Prices on US retail websites were up 3.3 per cent year on year in September, in contrast to the 2-5 per cent annual declines seen at this point in most previous years.

That is still below September’s 5.4 per cent increase in the US consumer price index but Schreiner said shoppers should expect prices to be 9 per cent higher during this year’s “cyber week”, which starts on the Monday after the Thanksgiving holiday in late November.

Schreiner said online shoppers had grown accustomed to like-for-like prices of computers falling by about 9 per cent a year “like clockwork”, for example, but this year they would have to pay the same as in 2020 for comparable devices.

Some economists consider the growth of online retail as key to unlocking the mystery of why prices and wages rose more slowly for the decade after the global financial crisis than most policymakers had expected.

Adobe’s Digital Economy index shows that since 2014, US prices for groceries have fallen by 5 per cent, furniture by 11 per cent and electronics by 45 per cent. Austan Goolsbee, former chair of Barack Obama’s Council of Economic Advisors, and Peter Klenow, a Stanford economics professor, calculated from Adobe’s data in 2018 that inflation in online prices had been running at 1.5-2.5 percentage points below the levels indicated in the consumer price index.

Jay Powell, chair of the Federal Reserve, told the Senate banking committee the same year that an “Amazon effect” may have contributed to low inflation since the financial crisis.

With headline prices expected to remain elevated, Adobe also predicts that retailers will offer discounts of between 5 per cent and 25 per cent this season, below the historical average range of 10-30 per cent.

For consumers, according to Schreiner, “it means we’re walking into the holiday season where on average, things are about 3 per cent (or) 3 1/2 per cent more expensive than they were in October last year or beginning (of) November last year”. 

The strains in global supply chains have pushed up prices for containers, trucking, warehousing and labour, prompting retailers to pass on the extra costs to consumers to defend their margins.

Last week the pharmacy chain Walgreens said it was adjusting some of its prices as a result of inflation. On Monday the supermarket group Albertsons said it was also looking closely at its pricing models so as to balance inflationary pressures and supply chain challenges.

In its report, Adobe said out-of-stock messages were up 172 per cent as compared to the pre-pandemic period in January last year. Apparel has the highest out-of-stock levels, followed by sporting goods, baby products and electronics.

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