Online prices fall for the first time in two years

Online shoppers are finally seeing lower prices on some items, a sign that the searing inflation that has seared the US economy may be starting to cool.

Online prices began to ease in July — the first decline in two years — and fell 1% from a year ago, new data from Adobe Analytics shows. The biggest falls were for electronics, clothes and toys, while prices for jewellery, books, computers and sports equipment also fell.

“As we see the prices of big online categories like electronics and apparel start to fall, we see overall online inflation going down,” said Adobe Digital Insights CEO Vivek Pandya.

Prices for electronics including TVs, smartphones, tablets and cameras — the largest online spending category — have fallen at an annual rate of 9.3%, according to the Adobe Digital Price Index.

Inflation in other online categories is still red-hot. Grocery prices in July rose a record 13.4% from a year ago, the steepest for any category. Online pet product costs rose 12.6%, in part because pet ownership became more popular during the pandemic, driving demand for related products.

Why prices are falling

Softer demand from consumers and robust inventory are helping to drive the decline in prices for discretionary goods such as electronics and clothing.

“On the one hand, there is a situation there [online retailers] have accumulated excess inventory because the level of demand they saw in previous years like 2020 and 2021 has decreased, so there has been a surplus across those categories,” Pandya told CBS MoneyWatch.

Necessities such as groceries and gas now also consume a larger proportion of household budgets, leaving less reserve income for other products.

“We also see demand falling because consumers have had to deal with price increases quite significantly across the board in 2022,” Pandya added. “Retailers are seeing profits as consumers’ budgets to spend more on discretionary items become more limited.”


Gas prices continue to fall from record highs

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The cost of other products such as sports equipment is falling as Americans spend more time outside the home, freeing them to exercise outdoors or at the gym.

“This is a category that when people were in lockdown, they bought a lot of sports equipment and equipment. Today it is a discretionary category that consumers can do without if they need it for a while, or until prices fall further, which is dampening growth, Pandya said.

Overall, online spending fell to $73.7 billion in July, from $74.1 billion the previous month, as more people returned to brick-and-mortar stores.

Turn the corner?

A drop in online prices gives hope that broader measures of inflation have peaked. The Ministry of Labor will on Wednesday publish its latest consumer price index, which measures the costs of a broad basket of goods. Inflation hit a new 40-year record in June, with consumer prices rose 9.1% during the last 12 months.

Airfare and gasoline prices, which contributed to last month’s high inflation reading, fell in July, notes David Kelly, global chief strategist for JPMorgan Funds.

“Falling food prices, a slight decline in wholesale used car prices and reports from purchasing managers showing slower growth in prices paid” suggest July’s monthly inflation figures could be the lowest in more than a year, he said Monday in a research note.

Gas prices have been falling for two months, falling from an average of $5 a gallon in early June to just over $4 today. Falling gas prices combined should reduce the headline inflation rate by 1 percentage point over the coming year, Jan Hatzius, chief economist at Goldman Sachs, told investors in a report.

Hatzius also notes that the widespread supply chains that led to product shortages early in the pandemic are beginning to relax, leading to improved delivery times and slower inflation for manufacturers.

A new survey by the Federal Reserve Bank of New York suggests that Americans were more optimistic in July that inflation may be loosening its grip on the economy. “Expectations of price increases for gas and food this year ahead fell sharply,” the bank said in a report.

Such expectations are critical because they can drive inflation if consumers and businesses believe that prices are likely to continue to rise, which can dampen spending and investment.

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