Adobe’s Digital Price Index Hints that Inflation Might Be on the Rise
Adobe’s Digital Price Index (DPI)—our analysis of real-time consumer spending—found something surprising in December and January: higher than expected inflation among consumer goods. It’s common for prices to dip in November with holiday bargains, and then bounce back up. But this December, prices saw a much bigger rebound than last year’s post-holiday season—0.6 percent in 2016 compared to zero percent in 2015. The bigger bounce put prices higher than pre-holiday levels. And January’s DPI shows more signs that suggest inflation might be on the rise: prices rose 0.5 percent, resulting in 1.2 percent cumulative inflation for the last three months, which is notably higher than the .9 percent observed during that period a year ago.
“The inflation we’re seeing is really interesting because the American economy has been struggling with deflation in the last few years, especially in durable goods like computers and appliances. But here we’re seeing people out buying TVs and computers, spending their disposable income, and that’s generally a good sign for the economy. It’s an indication that retailers were able to raise prices a little bit and consumers seemed to be okay with it. It’s too soon to tell if this will continue, but it’s an important trend to watch” explains Luiz Maykot, data science analyst for the Adobe DPI.
Inflation in December of 2016 was especially notable for televisions (7.8 percent), appliances (6.0 percent) and tablets (5.4 percent). Despite these MoM (month-over-month) increases, almost all categories in the DPI showed cumulative deflation in 2016, especially televisions (-19.8 percent) and tablets (-16.1 percent). But in January, the inflationary trend continued, especially for televisions (1.1 percent) and tablets (6.4 percent).
The Unique Insight of 15 Billion Website Visits
The Adobe DPI offers a unique window into consumer spending. It’s based on an analysis of aggregated, anonymous data from 15 billion website visits and 2.2 million products sold online. The data is sourced through the Adobe Marketing Cloud, and represents 80 percent of all online transactions from the top 100 U.S. retailers. This huge trove of data gives researchers a way to track the actual prices and quantities of goods consumers are purchasing, something the standard Consumer Price Index (CPI) currently can’t measure.
This real-time data gives a picture of the overall economy, as well as an unprecedented opportunity for researchers to measure how short-term changes, like holiday sales, impact consumer behavior. Luiz explains: “Consider televisions. Between November and December, 50 percent of all televisions were sold during the eight days between the Monday before Thanksgiving and Cyber Monday. Since the CPI doesn’t have real-time sales data, they have to assume that consumers are buying the same number of TVs each day. But we can track how daily price changes impact sales. It gives us a much more accurate picture of how consumers and prices are really behaving.”
New DPI Categories Add Even More Insight
In December and January, the DPI began tracking five new categories: alcoholic beverages, auto parts, tools and home improvement products, personal care products and pet products.
“In our new alcoholic beverage category, we saw inflation YoY [year over year], driven by beer prices,” Luiz notes. “What’s even more interesting from a retailer’s perspective is the difference between online and offline alcohol sales. Offline, the CPI shows that sales are about 40 percent beer, 40 percent wine and 20 percent spirits. But online, wine is the strongest category. This suggests that wine retailers have really figured out how to leverage sales in the online world—and that means there’s an opportunity for retailers in the beer and spirits spaces to jump in.”
Researchers Dig Into the Data to Understand Shocks and Shifts
Since it first launched in March 2016, the DPI has gotten a lot of attention. The Digital Economy Project team working on the DPI is already sending their reports to the Bureau of Labor Statistics every month (they’re the ones who produce the CPI), and they’re preparing to launch a collaboration with the UK’s Office for National Statistics (ONS). They recently presented findings to the Federal Reserve, and they’ll meet with several governments in Latin America early this year.
Academics are interested in the data, too. One key question they’d love to answer is how major shocks impact consumer behavior. “If something bad happens, academics want to know if people stop spending, but there are very few data sets that can measure that,” says Luiz. “If something happens now, they wonder how that impacts spending in, say, the next eight hours.”
As for Luiz, he’s eager to find out what will happen with inflation in 2017. “There are a lot of forces in play, including talk of import taxes and the Fed’s recent decision to raise interest rates. With so much change, and I’m really curious to see what this year’s DPI will show.”