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posted on 16 June 2016

May 2016 Adobe Digital Price Index Shows Widespread Deflation Continues. Online Searches For Housing Purchases and Rentals Have Slowed.

from Adobe

Adobe's May Digital Price Index unveiled deflation in the majority of the consumer goods it tracks and low-cost items saw the greatest price drops year-over-year (YoY) with the exception of TVs. Between April 2015 and April 2016, prices of the most expensive TVs dropped much faster than the cheapest TVs (26.0 percent versus 15.0 percent).

In contrast, low-cost computers saw faster deflation than high-end computers (15.0 percent versus 4.0 percent). Appliances, computers, furniture, groceries, sporting goods and TVs saw month-over-month (MoM) deflation between 0.2 and 3.7 percent. Between April 2015 and April 2016, the DPI found that prices for appliances, computers, flights, furniture, sporting goods, TVs and toys dropped between 2.8 and 19.7 percent. In comparison, the U.S. Bureau of Labor Statistics' (BLS) Consumer Price Index (CPI) reported YoY deflation between 0.3 and 16.1 percent for these categories, and slight inflation (0.4 percent) for airfares. In May, the Digital Economy Project saw an increase in job seeking and decrease in housing searches relative to recent months.

Latest findings include:

  • Consumer Goods Deflation: Prices for electronics dropped 1.4% (including a 3.7% drop for tablets), sporting goods decreased by 0.4%, and groceries decreased 0.2% MoM.
  • Travel Inflation: Flights rose 4.1%, while hotel prices increased 0.7% MoM.
  • Job Seeking Index - More People Are Looking For Jobs: While the BLS uses surveys to gauge the labor market each month, Adobe measures online transactions in real-time through tracking visits to more than one billion U.S. employment search sites and top employer career pages (while the BLS uses surveys to gauge the labor market each month). This month's analysis unveiled that online job seeking increased from April to May, an indication that more people are looking for jobs, and pointing to potentially higher unemployment rates than reported.
  • Digital Housing Index - Housing Purchasing and Rentals Slows Down: Through analyzing two billion visits to U.S. housing search sites in the past year, Adobe's Digital Housing Index discovered that online searches for housing purchases and rentals have slowed.
  • Sporting Goods: In May, prices for sporting goods decreased by 0.4 percent MoM, with primary deflation in high-end sporting goods (over $350). In April 2016, the DPI saw 11 times more deflation YoY than the CPI, down 5.5 percent versus 0.5 percent, respectively. DPI sporting goods data is based on approximately 300,000 products.
  • Electronics: Prices for electronics in May dropped 1.4 percent MoM, with the most deflation in cameras, smart watches, TVs (2.0 percent) and tablets (3.7 percent). For TVs, high-end products (over $2,000) drove the most price decreases, whereas low-end computers (under $700) saw the largest deflation. The CPI doesn't break out electronics overall, but reported that prices fell 16.1 percent for TVs and 7.7 percent for computers in April YoY. For the same period, the DPI saw significantly more deflation, down 19.7 percent for TVs and 13.9 percent for computers. DPI data is based on online transactions of one million electronics products.
  • Flights: For May, airfares rose 4.1 percent MoM. Washington, Georgia and Hawaii saw the largest decrease in airfares, whereas Texas, California and Florida saw the most inflation. In April 2016, the DPI showed deflation of 4.6 percent for flights YoY, whereas the CPI reported a vastly different 0.4 percent inflation. DPI data is based on approximately 370 flight routes between April 2015 and May 2016.
  • Hotels: Hotel prices in May increased 0.7 percent MoM. Florida, Arizona and Louisiana saw the most deflation in hotel prices, and California, Illinois and Washington saw the most inflation. The DPI saw 2.8 percent inflation for hotels in April 2016 YoY, yet the CPI reported that the price of hotels remained stable. DPI hotel data is based on approximately 250,000 hotel properties and include associated fees.
  • Groceries: In May, prices for groceries decreased 0.2 percent MoM, with juices and non-alcoholic beverages seeing the most deflation. In April, the DPI saw inflation of 0.5 percent YoY. For the same period, the CPI reported 0.3 percent deflation. The DPI covers 30 to 40 percent of online grocery transactions for approximately 195,000 products, and is heavily comprised of groceries purchased online and picked up in-store.

Caveats and Comments Relating To This Index

As this is a new index, it has not been tested over time. The index author claims:

Inflation rates constantly fluctuate and are heavily dependent on the surge of online shopping. Yet traditional economic reporting fails to capture real-time price and quantity changes as well as actual consumer behavior, and is therefore unable to measure the impact of major market changes as quickly, such as recent bankruptcy announcements of retailers or Intel's softness in the PC market. By contrast, Adobe's (Nasdaq:ADBE) monthly Digital Price Index (DPI) measures prices and quantities of online purchases in real-time. Two economists - Austan Goolsbee, professor of economics at The University of Chicago's Booth School of Business and former chairman of the Council of Economic Advisers for President Obama, and Pete Klenow, professor, department of economics at Stanford University - are collaborating with Adobe on the DPI.

Adobe is the first company to conduct a digital-centric analysis based on real-time access to price-paid data and actual quantities sold. Adobe Digital Index leverages the Fisher Ideal Price method, which uses actual quantities purchased to measure inflation and is recognized by leading economists as the gold standard for the calculation of inflation. No other organization can use the Fisher Ideal Price method today because the calculation requires knowing the quantity of each product purchased in each period. Before Adobe, this has been impossible to measure at a sufficient scale.

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