The Internet Might Be Keeping Inflation Low

Austan Goolsbee and Peter Klenow have taken a crack at estimating e-inflation: the inflation rate of items bought online compared to those bought offline. They make use of the Adobe Analytics dataset to calculate a Digital Price Index (DPI) and then compare it to a matched set of items from the normal CPI basket of goods. Here’s the result, with ordinary CPI-U overlaid on their chart:

As you can see, they calculate that DPI is quite a bit lower than the matched CPI: about four points lower over the course of nearly four years. However, the fact that the basket of goods happens to be one that’s been deflating over the past four years makes me wonder if it’s really representative of overall inflation. If it is, then overall e-inflation has been about four points lower than CPI-U. If not, then who knows?

This is above my pay grade, but here are a couple of interesting charts from their paper. First of all, there’s one category where buying online apparently doesn’t help. Can you guess what it is?

Good ol’ health care. Apparently prices rise faster online than offline for medical supplies. Yeesh. But in the news-you-can-use category, check out recreational goods:

Every year, like clockwork, there’s a sudden drop in November. So if you’re looking for a good deal on sleeping bags or canoes, buy online in November. You’re welcome.


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