Robert,

Deflation, driven by Moore's law driving all things digital to likely be offered tomorrow at  higher performance and lower price. Graham Tanaka, an economist, has investigated the "digital deflation" in his eponymous book (see in Amazon).

Cheers,

Ed Gerck

i do not see any correlation between inflation and e-commerce. e-commerce creates new channel for sales and give options to buyer to buy anywhere anytime and anyplace. it creates competition in many ways...therefore, i do not see any significance between both.

Rajeev,

You wrote, "e-commerce creates new channel for sales and give options to buyer to buy anywhere anytime and anyplace. it creates competition in many way".  I agree.

After this, perhaps you mistyped your conclusion.  Therefore,  should follow, a buyer would more likely find a product for less money. This means deflation. In other words, e-commerce tends to reduce inflation.

Cheers,

Ed Gerck

Thank you Ed for the suggestion.I looked up the book and will read it. It concentrates however on the supply side and how technology improves productivity and keeps price increases in check. 

My question however relates to the demand side and how e commerce and more savvy internet shoppers could put downward pressure on retail prices. 

Does it give rise to a correlation between e commerce and inflation is what I am trying to investigate. 

Dear Robert

Your question is correct because - at least theoretically - e-commerce could raise demand for certain goods, making their manufacturers/sellers increase their prices, thus generating inflation.

However, it seems difficult to imagine that - as e-commerce is globalized - suddenly a huge number of customers from a given country would start spending money uncontrollable, boosting local demand to a point of generating inflation.

In fact, national inflation is generated when macro-players are pushing prices up because of excessive offer of money or when governments start spending above the level of what they collect in taxes.

Does this make sense to you?... as I am not an economist :-)

Regards

Tom

Tom, thank you for your answer. It makes perfect sense.

My question implies that e commerce grows at the expense of brick and mortar retail and therefore does not create significant surge in demand. Although this point has to be studied, there is ample circumstantial evidence that this is the case.

As for your second point, there are no doubt other powerful factors that fuel inflation and you mentioned two very valid ones. What I would like to know is whether inflation has been significantly affected by e commerce and if any publication exists on the subject

Thanks Ed. for correcting the answer. 

I   think if e-commerce could cause inflation, it would not last  long because  online buyers can quickly find better deals from any part of the world. This could lead to a sudden decrease in the demand for products with high prices and perhaps encourage deflation.  So, I don't imagine a significant inflation arising from e-commerce. Besides, the Internet gives exposure and advertising opportunities to many manufacturers of the same product,  thus making it hard for any one of them to monopolize the market to the point of defining and maintaining the market price. 

Regards,

Pauline

Robert,

You wrote, "What I would like to know is whether inflation has been significantly affected by e commerce and if any publication exists on the subject."

It is well-known that many, large, and once market-dominating "brick-and-mortar" stores have closed down -- and are closing down -- because they could not compete with lower prices online, that is -- deflating prices.  The latest example is Walmart, and the stated reason is online competition:

The world's largest retailer is closing 269 stores, including 154 in the U.S. that includes all of its locations under its smallest-format concept store called Wal-Mart Express. The other big chunk is in its challenging Brazilian market.

The announcement comes three months after Wal-Mart Stores Inc. CEO Doug McMillon told investors that the world's largest retailer would review its fleet of stores with the goal of becoming more nimble in the face of increased competition from all fronts, including from online rival Amazon.com.

Cheers,

Ed Gerck

Dear Robert

Many thanks for your kind feedback.

Here is literature that may be of your interest. It contains several mentions about the relation between ecommerce and inflation.

You can read snippets on Google Books

VanHoose, David. ECommerce Economics. Taylor & Francis, 2011.

https://books.google.com.br/books?hl=pt-BR&lr=&id=djblGcQmHZoC&oi=fnd&pg=PR3&dq=ecommerce+and+inflation&ots=1Yzrm5dyV2&sig=4NMvsBU2o24ngMz4mOxTZ62u0_c#v=onepage&q=ecommerce%20and%20inflation&f=false

Hope this helps.

Tom

Ed,

I think the example of Walmart is very good. They were the price cutters "par excellence"

It is a known fact that e commerce share of retail sales has grown regularly from about 1/2% in 2000 to over 6% in 2014. It is still a marginal percentage but enough in my opinion to influence price levels.

The question that remains is whether it is too marginal or not to affect the CPI of countries like the US in the way it is computed by the government agencies.

Thanks

Robert

Robert,

You wrote, "countries like the US in the way it is computed by the government agencies."

The US Fed uses economic models from more than 50 years ago. For example, tying unemployment rate with interest rate. Although using current data, the results make no sense. The world and the US Fed need new models. Perhaps, your research can help.

Cheers,

Ed Gerck

Ed,

Thank you for your answer. I did not suspect that the CPI measurement models were  so old. 

I have partially addressed the question of CPI in my first paper on the 2008 financial crisis

( http://cirano.qc.ca/files/publications/2009RB-02.pdf ) but only from the point of view of including asset prices in the CPI. More specifically, I argued that including the price of real estate ( undoubtedly an important element in the cost of living of households) would have increased the CPI in 2005-2007 significantly enough to induce an increase in interest rates and perhaps avoided or attenuated the 2008 crisis. To this day, there has not been the slightest hint of taking asset prices into account.

As for tying unemployment rate with interest rates, it might have worked when interest rates were at a higher level but it is clear that this correlation disappears when interest rates tend toward 0% as I have explained in my latest paper: http://cirano.qc.ca/files/publications/2015DT-01.pdf

best

robert

http://www.kansascityfed.org/publicat/ECONREV/PDF/2Q04Will.pdf

Arjun, Thank you for the link.

The documents is interesting but dates back to 2004. Since then various economists publications have concluded that e commerce had small impact on inflation. This is surprising to me and I am not sure that their methodology is inclusive enough of all the distribution circuits e commerce and the internet has opened.

Even more surprising is the fact that productivity in advanced economies has been on the decline for several years. Is this a consequence of the internet or is it due to other forces that the internet cannot counter is unclear but these are 2 interesting phenomenons..

Hello Robert and all,

Any updates? China seems to offer more examples that e-commerce tends to increase deflation, where new products displace older, expensive products, although different ... but providing the same function at a lower price (a deflation).

Cheers, Ed Gerck