Adobe Digital Economy Index: Online inflation continues to rise — everyday staples getting more expensive

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The COVID-19 pandemic reversed a predictable pattern in eCommerce, where consumers were generally able to purchase goods cheaper online. This reversal was the result of surging demand, supply chain constraints, and growth in categories that had more durable prices. In recent months, online inflation continues to rise. And while these price increases aren’t as steep as those offline, the upward trend shows no signs of slowing down.

As eCommerce takes on a greater share of overall retail, online inflation is becoming a bigger concern for consumer pocketbooks. Even as supply chain issues resolve, rising demand may lead to less discounting, as retailers look to preserve margins or offload fulfillment costs. The latest figures and analysis from the Adobe Digital Economy Index (tracking online prices since 2014) are below.

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For the month of July 2021, online prices are up 3.1 percent year-over-year (YoY) and down 0.7 percent month-over-month (MoM) — note that because of greater volatility in prices online versus offline currently, monthly changes are expected to be more dynamic. In the month prior (June 2021), online prices were up 2.3 percent YoY and up 0.6 percent MoM.

Consider that as a historical benchmark, from 2015 to 2019, online prices fell 3.9 percent on average each year — highlighting the reversal in predictable eCommerce trends that has sustained in recent months. For further reference, the Consumer Price Index (CPI) which captures offline prices, rose 5.4 percent YoY and 0.5 percent MoM in the month of July 2021.

In the following chart, the Consumer Price Index is profiled against Adobe’s data (cited as DPI for “digital price index”). This chart shows the monthly price change, indexed to January 2014 when Adobe first began tracking online prices. The March 2020 line (start of the pandemic) highlights the period when prices changed directions and online inflation began to rise.

Individual category analysis

In the 18 categories tracked by the Adobe Digital Economy Index, all but one (office supplies) saw higher prices in July 2021 when compared to a pre-pandemic period (2015-2019 average). Notably, everyday staples are becoming more expensive for consumers. Groceries for instance, saw prices rise 1.28 percent in July — compared to a smaller 0.47 percent rise in June and 0.51 percent rise before the pandemic.

Other everyday staples such as personal care products, which typically saw prices fall 1.23 percent on average before the pandemic, rose by the same amount (1.23 percent) in July. The same trend was observed in pet products, a category seeing tremendous growth as people stayed home and took renewed interest in their pets — prices rose 1.37 percent in July, compared to a pre-pandemic period where prices typically fell 1.12 percent. Additionally, prices for non-prescription drugs are up 5.66 percent in July, a massive jump from prior to COVID-19, where prices increased only 0.01 percent on average.

Electronics and computers, legacy eCommerce categories where consumers generally expect better and cheaper products every year, also saw continued inflation online. Computer prices were typically down by 9.24 percent before the pandemic. In July however, prices were down by only 6.97 percent. Electronics saw an even more dramatic shift: typically down 9.06 percent pre-pandemic, the category was down only 2.04 percent in July.

With a hot real estate market and consumers spending more time at home, online inflation in categories including furniture/bedding, home/garden, tools/home improvement, and appliances have sustained. The pandemic induced a shift in consumer behavior, with more people now comfortable ordering couches, gardening tools, and more online. With less dramatic discounting, compared to electronics and computers for instance, these categories will continue being a driver for online inflation if demand remains high.

“With online shopping becoming more ubiquitous, and consumers getting more accustomed to ordering everyday staples through eCommerce, we expect online inflation will continue to rise and be in closer sync with offline prices,” says Vivek Pandya, lead analyst, Adobe Digital Insights. “As the digital economy expands, online pricing trends will have greater impact on how we measure and understand inflation overall. Consider that in just the first seven months of 2021, consumers have already spent over $481 billion dollars online, a staggering 61 percent increase over the same period in 2019.”

Methodology: The Adobe Digital Economy Index (DEI) uses the Fisher Price Index to track prices in the world of Ecommerce. The Fisher Ideal Price Index uses quantities of matched products purchased in the current period (month) and a previous period (previous month) to calculate the price changes by category. Adobe’s analysis is weighted by the real quantities of the products purchased in the two adjacent months. Powered by Adobe Analytics, the Adobe DEI analyzes 1 trillion visits to retail sites and over 100 million SKUs in 18 product categories. Adobe uses a combination of Machine Learning and manual effort to categorize the products into the categories defined by the CPI manual. The methodology was first developed alongside Austan Goolsbee and Pete Klenow.