More online shopping could mean lower inflation

(“Circadia” by Tim Whitelaw) – [Narrator] E-commerce spending has almost tripled over the past decade as shoppers go online to buy things instead of into traditional,
brick-and-mortar stores. This consumer pattern could have an effect on price inflation and how we measure it. When there’s inflation, prices go up, but how much they go up over time may depend on where you shop— whether you’re filling
your cart on a website or in an actual store. According to Chicago
Booth’s Austan Goolsbee and Stanford’s Peter Klenow, price inflation is lower online than it is in traditional stores, and including new and exiting
goods in the calculation further widens the gap. To track inflation, economists have
traditionally relied on the Consumer Price Index, or CPI, that measures the price a city dweller would usually pay for a basket of consumer
goods and services, typically in a traditional setting as opposed to online. Along with Adobe Analytics,
Goolsbee and Klenow helped create a more-complete method of tracking inflation online. They devised the
Digital Price Index, or DPI, which gathers monthly data about millions of online transactions from 80 percent of Fortune 500 retailers. The Digital Price Index reveals that from 2014 to 2017 e-commerce inflation was 1
full percent lower per year than what was observed in
the Consumer Price Index. And that gap widened to
about 3 percentage points when the researchers took into account all the products that get introduced or pulled from market in any given year. And if we keep going through the years, that 3 percent difference
could impact the future of the way shoppers fill their baskets. If online shopping continues to grow, it could influence overall
inflation levels in the economy. This could potentially be of major concern to central bankers’ inflation targets and to the standard way we
measure price inflation.

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