Author: Patricia Cohen / Source: New York Times
Unemployment is sinking and businesses are churning out more goods and services. Yet even with the economy standing on tippy toes, prices and wages are climbing a lot more slowly than anyone has expected.
Now a growing body of research is putting the blame more pointedly on e-commerce.
The spectacular growth in online shopping, it turns out, is not only tamping down inflation more than previously thought, but also distorting the way it is measured.The studies reinforce the views of Federal Reserve officials who see the internet’s increasing influence as a leading suspect in a continuing mystery: why inflation routinely falls short of their 2 percent target, considered the sweet spot for keeping the economy humming without overheating.
The caution is unlikely to prevent the Fed from raising benchmark interest rates at its meeting on Tuesday and Wednesday in Washington. Central bankers are engaged in a methodical effort to return rates to levels that prevailed before they were pushed near zero to fuel growth during and after the Great Recession. Some officials have raised concerns that the Fed may need to speed up that process, to prevent inflation from accelerating rapidly as the economy heats up even more.
But some of the latest findings suggest that those fears could be unfounded — and that the official statistics are overstating inflation.
“We don’t have as good measures of the economy as we should, in part because there are many new digital goods and new online channels,” said Erik Brynjolfsson, director of the M.I.T. Initiative on the Digital Economy. “At the same time, digitization of more and more of commerce creates a huge opportunity for much better measurement.
”One opportunity has come from the Digital Price Index, a compilation of data scraped from the web that Adobe Systems recently started collecting.
An analysis of that information by Austan Goolsbee of the University of Chicago and Peter Klenow of Stanford found that prices for goods sold on the internet rose much more slowly from 2014 to 2017 than indicated by barometers like the Consumer Price Index, or C.P.I.
Online prices of personal computers fell by 12.3 percent, for example, but the C.P.I. showed just a 6.9 percent drop. Toy prices online slumped 12 percent, while the C.P.I. put the drop at just 7.8 percent. Online prices for photographic equipment and supplies fell 9.2 percent compared with the 0.6 percent decline registered by the official measure.
The government will publish the C.P.I. data for May on Tuesday; in April, the index showed a 12-month increase of 2.1 percent. The monthly figures are based on a sampling of 140,000 products sold both in stores and online. Adobe’s digital index solely includes internet sales, but the range of products covered is much bigger: 2.1 million transactions every month.
“A lot of what’s in the C.P.I. is not bought on the internet, like health care and housing,” said Mr. Goolsbee, who was also an adviser to former President Barack Obama. But…
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