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posted on 17 July 2016

June 2016 Adobe Digital Price Index Shows the Beginning of the Impact of BREXIT.

from Adobe

Digital Price Index (DPI) for June reveals the impact of Brexit on UK travel prices and incorporates data for over-the-counter (non-prescription) drugs and medical equipment and supplies for the first time. Prices for London flights and hotels decreased significantly unlike other comparable destinations while prices for over-the-counter drugs increased slightly month-over-month (MoM).

Adobe's June report shows continued deflation in the vast majority of goods and services the DPI tracks, with essential goods such as groceries and medical supplies seeing significantly less deflation than non-essential goods such as electronics and sporting goods. Tablets, televisions and appliances drove the most deflation from May to June with up to 3.5 percent, while over-the-counter drugs, international airfares and toys saw the highest inflation rates with up to 2.5 percent. Prices for over-the-counter drugs increased 0.5 percent MoM, while prices for medical equipment and supplies decreased 0.2 percent. In addition, June's data reveals that 16 percent of the month's online spend for groceries was on new products while electronics saw an average of 80 percent of online spend on new products. Said Mickey Mericle, vice president, Marketing and Customer Insights at Adobe:

While international airfares were one of the few categories that saw prices increase between May and June, prices for London flights and hotels specifically decreased significantly with 8.5 and 3.0 percent respectively. In addition to lower fuel costs, the recent devaluation of the British Pound appears to be a contributing factor to lower travel costs to the UK." The DPI's travel prices are in dollars.

Latest findings include:

  • Flights: For June, domestic airfares increased 0.4 percent Month-over-Month (MoM), with flights to and from Florida seeing the largest increase and Washington, Tennessee and Oregon driving price decreases. Prices for international airfares are up 2.5 percent MoM overall while prices for flights to London specifically are down 8.5 percent MoM, 12.1 percent YoY. Data is based on about 370 flight routes.
  • Hotels: Domestic hotel prices rose 0.8 percent Year-over-Year (YoY), with Nevada, Tennessee, Colorado and California destinations driving these increases. While the DPI showed 0.7 percent inflation in May, the CPI showed a 3.5 percent inflation rate. Specific to London, prices for hotels decreased 3.0 percent MoM. DPI hotel data is based on approximately 250,000 hotel properties and include associated fees.
  • Over-the-Counter Drugs: Prices for over-the-counter drugs increased slightly by 0.3 percent YoY, with primary inflation occurring for over-the-counter drugs priced between $10 and $15. In May, the DPI showed 0.8 percent deflation for over-the-counter drugs, while the CPI showed 0.3% inflation MoM. DPI over-the-counter drug data is based on transactions of 16,000 products.
  • Medical Equipment and Supplies: For June, prices for medical equipment and supplies, such as supportive and convalescent equipment, dressings and first aid kits, dropped 0.6 percent YoY. Products priced more than $135 drove this deflation, while the majority of price increases were seen in products between $0 and $10. Diabetes-specific supplies and equipment saw the largest price increase YoY, with an inflation rate of 2.4 percent. For May, the DPI saw deflation (1.3 percent) while the CPI reported inflation at 0.7 percent. Data is based on transactions of 6,000 products.
  • Sporting Goods: While June sporting goods prices decreased 0.6 percent MoM, the DPI shows 5.1 percent deflation YoY with products priced between $40 and $100 driving the YoY downward trend. For the same time period in May, the DPI reported vastly different data than the CPI: 5.2 percent deflation vs. 0.3 percent inflation, respectively. Data is based on approximately 300,000 products.
  • Electronics: The DPI shows that prices for electronics decreased 10.5 percent YoY (1.8 percent MoM), with products priced between $200 and $500 seeing the largest declines. Specific to computers, the DPI shows 12.3 percent YoY deflation in June with products priced between $700 and $1200 seeing the largest decrease. Prices for televisions and tablets are also down significantly YoY, with deflation at 17.5 and 19.9 percent, respectively. While the CPI does not break out electronics overall, the latest report showed prices fell 2.9 percent YoY for appliances and 7.8 percent for computers in May. For the same period, the DPI saw significantly more deflation with 4.5 percent for appliances and 12.7 percent for computers. DPI data is based on online transactions of over one million electronics products.
  • Groceries: Following four months of price drops, the DPI showed slight deflation of 0.1 percent YoY and 0.6 percent deflation MoM. 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.
  • Brexit: London hotel prices decreased 3% MoM, and airfare to London are down 8.5% MoM

The complete Adobe Digital Economy Project June report can be found here.

Caveats and Comments Relating To This Index

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

By tracking seven dollars and fifty cents out of every ten dollars spent online with the top 500 U.S. retailers, the DPI is able to analyze billions of digital transactions, while the Bureau of Labor Statistics' Consumer Price Index (CPI) relies on consumer surveys to approximate the actual sales in each product category tracking only 87,000 products.

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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