Is the Internet making everything cheaper? Well, not everything, but a lot of things, according to Adobe, which has come up with a new index to track the price of goods. The company gets its results by crunching data on millions of online transactions it tracks through its online marketing service.
The price of televisions online fell a cumulative 20.3 percent from February 2015 to February 2016, according to the latest numbers from Adobe's Digital Price Index, released on Thursday. The Bureau of Labor Statistics' Consumer Price Index, by contrast, logged a 15 per cent drop in TV prices over the same time period.
The same held true for the price of household appliances like refrigerators and dishwashers. Online, appliance prices dropped 5.7 per cent in the year to February, compared with a 2.7 per cent decline in the government's price index equivalent. Furniture and bedding prices showed less of a fall online and in physical stores, but the spread between the two was still wide: a 2.5 per cent decline, according to Adobe, compared with a 0.5 decline in the Consumer Price Index.
The new price index from Adobe is meant to be a complement to the price index released by the Labor Department, which tracks fewer goods online, offering economists new data points. The numbers released on Thursday were the second monthly numbers from the company.
The lower prices suggested by the digital index are good news if you're in the market for a new television or refrigerator. The index also has implications for our understanding of the wider economy.
Austan Goolsbee, a former chairman of President Obama's Council of Economic Advisers, who has been helping Adobe develop its index, said the Adobe figures suggest that the government's index could be underestimating deflation, or the overall fall in prices, in the economy.
"Large parts of the economy, a fast-growing part, is now e-commerce-oriented," Goolsbee said. "And Amazon's prices are much cheaper, and if everybody's doing their shopping on Amazon, then that should properly be taken into account in the inflation rate in a way it isn't now." He said it could help explain why inflation remained low, for example, despite a booming jobs market. Researchers at the Bureau of Labor Statistics periodically conduct surveys with shoppers to figure out what products they buy and where, and based on those surveys, build a basket of goods. Then each month, inspectors go out to stores to check the prices of those goods - about 94,000 individual items.
To try to keep the basket of goods current, the bureau updates about an eighth of the basket every six months. If consumers report buying items online, those items have a chance of being picked for the basket. But the bureau's own economists are the first to acknowledge there are several drawbacks to the process. Because these surveys take time, the composition of the basket of goods probably reflects consumer behaviour from a few years ago, said Steve Reed, an economist with the bureau's consumer price programme.
So the index could lag in reflecting the shift in shopping to the web - and the lower prices that follow.
"It's always been the case that we've trailed actual consumer behaviour," Reed said.
In comparison, the Adobe index tracks about 1.7 million consumer goods, all online, in real time. It can incorporate new goods quickly, and pick up price trends over days, not just months. For example, data from Black Friday last year showed that TV prices really did fall over all during that holiday weekend. So Black Friday may really be the best time to buy a new TV.
Some Internet deals, of course, can be deceptive. Still, the lower prices make sense, said Tamara Gaffney, the principal research analyst on Adobe's digital index project, because websites lets shoppers browse and shop anywhere, comparing prices across multiple sellers and taking advantage of the best bargains available.
And not all online prices were lower. Groceries bought online logged a cumulative inflation of 0.75 per cent in the 12 months to February. Over the same period, the Consumer Price Index for that category fell 0.31 per cent.
That could be because shoppers who do their grocery shopping online tend to skew richer, Gaffney said, and are less likely to shop around on different sites to find the best prices. Shoppers may also be less likely to invest effort into finding a good deal for a carton of milk online as opposed to, say, a tablet.
Over all, though, brick-and-mortar stores are facing pressure to match the low prices of their online rivals. Shoppers regularly use smartphones to compare prices right in the store's aisles.
The importance of online prices will continue to grow as shopping shifts online, Gaffney. Since the Adobe index was introduced last month, Adobe has begun tracking appliances, toys and furniture, and will continue to add more categories, she said.
"A lot of things you'd think aren't online are starting to move online, like restaurant orders. So it's always possible that something you think of as purely offline could become more trackable via digital big data," she said.
Still, the government index tracks products we don't buy online and most likely won't for a long time, like gas or hospital services. That makes the index a good measure of prices in the wider economy.
"People will always pay attention to the CPI as a measure of inflation," Goolsbee said. "But I'd think everybody who cares about the cost of living - like the Fed making monetary decisions, the government making forecasts and people evaluating how incomes have changed in real terms - have to at least wonder in their minds whether they're measuring things correctly."
© 2016 The New York Times News Service
