Online shopping used to be immune to inflation. Not anymore

Sticker shock has even invaded the land of falling prices: online shopping.

Through economic booms and busts, e-commerce has long been virtually immune to inflationary pressures. Average online prices dropped every year between 2015 and 2019. But Covid ended that once-reliable trend. Online prices jumped 3.1% year-over-year in July, according to a report released Thursday by Adobe. Out of 18 categories captured by the Adobe Digital Economy Index, all but six saw price jumps last month. The price gains were most dramatic in July for online clothing, over-the-counter drugs and sporting goods. “Pre-Covid, I don’t think there was any inflation. It was exclusively deflationary,” Austan Goolsbee, the former Obama adviser who helped Adobe develop the index, told CNN.

This isn’t a one-month glitch. Online prices began rising soon after the pandemic erupted in March 2020 and that trend has continued. Adobe found that online prices rose by 2.3% during the 12 months ending in June and gathered momentum in July. That marks a sharp reversal from the pre-Covid historical trend. Between 2015 and 2019, online prices dropped by an average of 3.9% every year.

Goolsbee said the fact that online inflation is hotter-than-normal suggests the next few monthly inflation reports released by the US government may not show inflation is cooling off just yet. That would be a disappointment to consumers, not to mention the Federal Reserve, White House and the many economists arguing these price spikes are just a temporary phenomenon. “The Fed should absolutely be paying attention to what’s happening online,” said Goolsbee, who added that he remains on “Team Temporary” when it comes to the inflation debate. Online inflation is a big deal because falling e-commerce prices are often cited as a major reason inflation should eventually return to healthy levels.