In what could be a harbinger of lower prices throughout the economy, inflation for online spending fell in April and slowed markedly on an annual basis as consumers shifted their buying from goods to services.
With the notable exception of online groceries, prices dropped 0.5% for the month. And while they increased overall 2.9% from a year earlier, that was below the rate of 3.6% recorded in March.
Data collected from Adobe Analytics for its monthly digital price index – a digital equivalent to the government’s consumer price index – shows that prices in some categories such as electronics actually fell both for the month, at 0.9%, and for the year, down 5.2%.
Overall, Adobe saw price decreases for more half of the 18 product categories it tracks.
Groceries, however, continued to be more expensive in April, rising 1.3% for the month and 10.3% year over year. While apparel was up 12.3% annually, that was less than the February and March increases of 16.7% and 16.3%, respectively.
While “it may be a little too early to gauge the magnitude of the drawdown in online spending,” Adobe Digital Analytics lead analyst Vivek Pandya says it fits a pattern of consumers shifting away from items they bought during the pandemic toward more services and goods that might be used in a more normal environment without remote work and lockdowns.
There are other indications of the shift. Some of the online darlings of the pandemic, such as Peloton and Carvana, have seen their stocks and businesses suffer as consumer behavior shifts. Carvana said Tuesday it would lay off 12% of its workforce.
“In a number of categories, there’s been a momentum shift,” Pandya says. The online shopping environment has been through a roller coaster that tracks the two-year timeline of the coronavirus pandemic. Prior to the pandemic in March 2020, online sales grew steadily at about a 10-12% average yearly rate. Then it surged by 40-60% annually when the pandemic struck and people were unable to shop in person.
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In April, online sales grew overall at a 4.5% annual rate, to $77.8 billion. But that was less than the $83.08 billion spent in March, according to Adobe.
Part of the slowdown is no doubt a reaction to runaway inflation and rising interest rates, which are causing some sectors of the economy to slow down from their prior strong sales levels.
In the first quarter, the economy actually shrank by 1.4%, following a 6.9% increase in the fourth quarter. Consumer spending, however, has held up as people continue to have savings built up during the pandemic and jobs are plentiful.
“There are plenty of worries to go around – inflation, the supply chain, war, COVID and more – but the job market is not among them,” Ted Rossman, senior industry analyst at Bankrate, said on Tuesday. “At least not right now. Some fear the Fed’s interest rate increases will bring on a recession and lead to future job losses, but that’s a concern for another day. We recently polled a couple dozen leading economists and they pegged the recession odds in the next 12-18 months at 33%.”
“Another glass-half-full take on the job market is that it’s empowering Americans to keep up with record levels of household debt,” Rossman added. “Mortgage and auto loan balances are already at record highs and credit card balances will soon follow. There’s also the possible end of the student loan payment pause this summer. Yet on a debt-to-income basis, household debt is as affordable as it has been in decades.”
But consumers are having to prioritize what they buy with food and energy costs soaring as a result of the war in Ukraine. And they face a Federal Reserve that is determined to break the back of inflation with higher interest rates and less liquidity in the financial system, both of which could crimp spending.
“The Fed’s best chance to meet its inflation target without a recession is if goods prices fall rapidly,” Tim Drayson, chief U.S. Economist at Legal & General Investment Management, wrote on Tuesday. “It should help that used car prices are easing back, but the overall outlook is very uncertain. Other rises in goods prices should begin to slow as inventories recover, yet with elevated commodity prices and additional supply chain disruptions, prices are unlikely to actually decline.”