Online customers are now seeing cheaper costs for certain items, indicating that the scorching inflation that has seared the US economy may be cooling.
According to new Adobe Analytics statistics, online prices started to decline in July for the first time in two years, decreasing 1% year on year. Prices for electronics, clothes, and toys fell the most, but prices for jewelry, books, laptops, and athletic items all fell.
“We’re seeing overall online inflation come down because we’re seeing prices on big online categories like electronics and clothes start to come down,” said Adobe Digital Insights manager Vivek Pandya.
According to the Adobe Digital Price Index, prices for gadgets such as TVs, smartphones, tablets, and cameras have fallen at an annual pace of 9.3%.
Other internet categories continue to see rapid inflation. Grocery prices increased by a record 13.4% year on year in July, the most of any category. The cost of online pet items increased by 12.6%, owing to increased pet ownership during the pandemic, which increased demand for related products.
Why are prices falling?
Prices for discretionary products such as electronics and apparel are falling as a result of lower customer demand and substantial inventories.
“On the one side, [online retailers] have accumulated extra inventory because the demand level they were seeing in prior years like 2020 and 2021 has fallen down, so there has been a surplus across those categories,” Pandya told CBS MoneyWatch.
Essentials such as food and petrol are also eating a larger portion of family budgets, leaving less money for additional purchases.
“We’re also witnessing a drop in demand since customers have had to cope with huge price hikes across the board in 2022,” Pandya said. “Retailers are witnessing surpluses as customers’ discretionary spending budgets become more constrained.”
Other things, such as athletic gear, are becoming less expensive as Americans spend more time outside their homes, enabling them to exercise outside or at the gym.
“This is a category in which individuals purchased a lot of athletic items and equipment during the lockdown. Today, it is a discretionary category that customers may go without for a short period of time or until costs fall more, slowing growth “Pandya said.
Overall, internet spending dipped to $73.7 billion in July, down from $74.1 billion the previous month, as shoppers returned to physical shops in greater numbers.
Are we rounding the bend?
A drop in internet pricing indicates that wider indicators of inflation have peaked. The Labor Department is set to issue its latest Consumer Price Index, which measures the cost of a wide basket of products, on Wednesday. In June, inflation reached a new 40-year high, with consumer prices rising 9.1% year on year.
According to David Kelly, chief global strategist for JPMorgan Funds, airline tickets and fuel costs, which contributed to last month’s high inflation number, decreased in July.
“Falling food commodity prices, a minor reduction in wholesale used vehicle prices, and purchasing manager reports indicating slower increase in prices paid” imply that July’s monthly inflation figures might be the lowest in almost a year, he said in a research note on Monday.
For the last two months, gas prices have been declining, going from an average of $5 per gallon in early June to slightly around $4 today. Falling gas prices could cut headline inflation by 1 percentage point over the next year, according to Jan Hatzius, chief economist at Goldman Sachs, in a note to investors.
Hatzius also observes that the widespread supply-chain snags that caused product shortages early in the epidemic are beginning to unravel, resulting in better delivery times and slower inflation for manufacturers.
According to a recent Federal Reserve Bank of New York study, Americans felt more hopeful in July that inflation was relinquishing its hold on the economy. In a study, the bank said that “expectations regarding year-ahead price rises for petrol and groceries declined considerably.”
Such expectations are important because they may fuel inflation if people and companies anticipate prices will continue to rise, reducing spending and investment.