Tuesday, December 26, 2017

Is Technology Holding Down Inflation?

See As the Fed Deliberates, Amazon Is Making Its Job More Difficult: Comparison shoppers keep a lid on inflation, complicating deliberations on interest rates by Harriet Torry and Laura Stevens of The WSJ. Excerpts:
"Holiday shoppers with smartphones can retrieve instant price comparisons that make bargain hunting easier—and the Federal Reserve’s job tougher.

Web-driven comparison shopping complicates Fed decisions on how much and how fast to raise interest rates. Consumer knowledge is keeping a lid on prices that retailers can charge on a wealth of goods, a small but growing factor holding down inflation in the U.S., Japan and other advanced economies"

"Fed officials, along with central bankers in Europe and Japan, want inflation to rise to an annual rate of around 2%, considered a healthy level for spending, business investment and higher wages. With the U.S. economy expanding and showing very low unemployment, an interest-rate increase would help forestall asset bubbles or other financial dangers."

" inflation remains puzzlingly weak, running below 2% for most of this year. Moving too quickly could stall growth.

Persistently weak inflation has stumped Fed Chairwoman Janet Yellen and her colleagues. Some Fed officials have argued for holding rates low a bit longer to give inflation a nudge. Most, though, want to raise them.

Economists attribute feeble inflation across developed economies to several causes, including aging populations, slow productivity growth and globalization, which have reined in the ability of companies to raise prices and wages." [it seems strange to say slow productivity growth holds down inflation since more productivity growth would shift supply curves to the right which lowers prices and later in the article they say that productivity is helped by this price competition-CM]

In a nod to the growing practice, Ms. Yellen said in September that increased competition created by online retailers “may have reduced price margins and restrained the ability of firms to raise prices in response to rising demand.” She said in October that online shopping “could be helping to hold down inflation in a persistent way in many countries.” The Bank of Japan in has attributed part of the price declines at supermarkets to online shopping."

"online price competition may be subtracting as much as a tenth of a percentage point from core inflation"

"and quarter of a percentage point from core-goods inflation, as measured by the personal-consumption expenditures index. It may not sound like much, but with annual core inflation at just 1.4% in October, it is significant."

"retail pricing now mirrors gas stations, where prices are clearly marked and competitors quickly match their rivals"

"The competition helps drive innovation and productivity, according to economists, while giving consumers more for their money. And some believe it will have a growing influence over central bank policy."

No comments: