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Online shoppers experienced falling prices throughout August, which is a positive sign that inflation is slowing down. According to CNN Business, “E-commerce prices tumbled by 3.2% year over year in August,” the greatest annual reduction in over three years.
If accurate, this would be a good indicator that inflation is decreasing across the nation, hopefully returning to the more accepted “normal” levels from only a few years ago.
Online prices for many items, such as sporting goods, appliances, electronics, and computers, saw significant annual decreases, with drops ranging from 7% to 14.2%, as detailed in the report. While grocery prices increased by 5% in August, there has been a consistent slowdown in these gains for 11 consecutive months. Notably, there was a 0.2% reduction in prices from July to August, the first monthly decline witnessed in over two years.
Unfortunately, prices in other categories are still seeing a distinct rise. For example, gas prices have continued to soar up to a national average of $3.84 per gallon.
CNBC shared that in August, the producer price index saw a seasonally adjusted increase of 0.7%, surpassing the projected 0.4% and marking the most significant rise since June 2022. When disregarding food and energy, the core PPI experienced 0.2% growth, which matched expectations.
On a different note, retail sales in August rose by an unexpected 0.6%, vastly outperforming the anticipated 0.1% growth, according to CNBC. Another source, MishTalk, shared that year-over-year sales were down for nine of the last 10 months until the period of June through August, which saw total sales increase by around 2.2% compared to the same period last year.
CNN also mentioned additional uncertainty in the market, noting that “the United Auto Workers union may strike on Friday, the federal government is heading toward another potential shutdown in October, geopolitical tensions with China remain heightened and oil prices could stay elevated through December. There’s also the looming question about whether the Federal Reserve will hike interest rates again.”
Reuters added to the discussion, stating that “a slew of U.S. economic data on Thursday showed stronger-than-expected numbers that stoked worries about sticky inflation and reinforced the view that the Federal Reserve is likely to keep interest rates higher for longer.”
At this point, it’s all a mixed bag and still uncertain for the time being. But the sooner things stabilize, the better off consumers and the retail industry as a whole will be.
BrainTrust
Nikki Baird
VP of Strategy, Aptos
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Discussion Questions
Can consumers’ new spending priorities help curb inflation? Do you have any recommendations as to what small businesses can do to weather the storm?
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The overall rate of inflation is coming down; however, the news only deserves half a cheer because prices are still rising, and they are doing so off the back of some very hefty increases in prior years. That means that while the prevailing rate of inflation for August is a reasonable 3.7%, the 3-year rate comparing prices to the same period in 2020 is a whopping 18.1%. That’s the reality consumers are having to grapple with. Online is a more competitive arena, partly because it is very easy to compare prices, so deflation has taken hold in some parts. The fact online is less exposed to high inflation categories like groceries, foodservice, and gasoline, also drives the numbers down.
Consumers will spend more on fashion and beauty items as they return to the office. Demand for food and fuel will remain high.
Small businesses can emphasize essentials and unique items, and invest in ads to communicate value amid inflation. Trimming expenses and digitizing their retail processes would also improve efficiencies.
It’s of minor relief that some prices on discretionary products are coming down, when prices on non-discretionary like groceries and gasoline keep going up. Dollars spent on non-discretionary items and record debt levels just means that there are less dollars available for discretionary spending. There’s only so much that people can cut back on groceries. Sounds like discretionary spending for the holidays is going to be tight, and that small businesses are caught in a very tight spot.
This weekend those $8.00 a dozen eggs were down to $3.25 in the store. That’s a good sign there.
What we may be seeing in the variance of prices between online and in-store is the age of the inventory in the system. It is only a guess, but online prices are more dynamic relative to real costs. Instore retailers are slower in clearer inventory and much slower in adjusting prices.
Remember, traditional retailers, grocery and otherwise, love inflation and the cover it gives them to raise prices.
It’s such a mixed bag of results – but the one thing that has not yet been factored in is the resumption of student loan payments next month. It may be that consumers got in one last hurrah before they have to buckle down. Adding a whole new bill back into the spending equation is the biggest wild card for what’s to come in Q4.
The complexity of this whole situation is mind-boggling. So many variables, so many potential outcomes. Is this a case where there is just too much data? Half of it conflicts with one another! Because consumers continue to pay more of their paycheck at the pump and the grocery store, demand for other items just won’t be as strong. Don’t forget that in 30 days, 40 million people with Student Debt must begin paying again. It could be a rough remainder of the year.
And yet, everyone and her aunt Tilley has an opinion as to ‘who’s’ fault it is instead of
‘what’s’ fault it is, as if it were one person or one tanker stuck in the Suez Canal (the “Ever Given, March 2021) that turned the global economy upside down.
While discretionary prices drop, non-discretionary costs rise, groceries and gas keep getting more expensive. This might be a tough holiday season for small businesses, due to limited budget. Small businesses should monitor costs closely, diversify suppliers, negotiate better deals, and consider adjusting prices when necessary to mitigate inflation’s impact.
Inflation mostly happens because of supply chain problems, raw material costs, and government decisions, not just what people buying pattern. People do have some power to affect prices, but it’s not the only thing. Central banks, governments, and the world economy are more important in controlling inflation.
Price comparisons by the shopper online takes a moment, as does price adjustment by the Retailer within the online channel. This is a necessity for online selling. Inside the store though, price comparisons (for most shoppers) are not as easy, and as well all know changing prices in the stores takes days not minutes. I’d expect prices to go down faster online than in store so consider this a leading indicator.
The increase in consumer spending combined with a drop in online retail prices is a good sign that people are adjusting to inflation and higher interest rates. We are still far from where we want to be, but this is a good start. If gas and groceries continue to rise, we’ll see less-than-expected holiday spending. The next 4-6 weeks will be telling as people are already starting their holiday shopping.
It’s rare that one sees a presentation of data followed by the phrase “if accurate”; of course it’s also rare that one see’s actual deflation, rather than a mislabeled (and scolding-inducing) fall in inflation.
I would, if not disregard it altogether, minimize the gas price component: fuel is inherently volatile, which is why it’s usually omitted in “core” indexes. The rest, I would say, is better than it was, but not quite where we want it.
Inflation has an overall number can be misleading because the components matter to consumers. Gas and food is a significant percentage of household budget and inflation there is more meaningful than discretionary spending. Retailers need to monitor those numbers closely to understand the consumer trend, whether it is discretionary or non-discretionary goods