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Online Prices Are Finally Falling Amid Oversupply and Diminished Consumer Confidence

25 Straight Months

According to the Adobe (ADBE) Digital Price Index, online prices are finally cooling off. The welcome development comes after 25 consecutive months of year-over-year increases. Prices fell 1% in July compared to the same time period in 2021. Meanwhile, it marked the second straight month that prices fell on a monthly basis. Analysts argue this shows ecommerce is entering a period of deflation.

Adobe’s report showed decreasing prices in seven out of the 18 categories tracked in July. The price of books, clothing, computers, electronics, jewelry, and sporting goods all fell year-over-year. The most significant decline was for electronics, as July’s prices were down 9.3% from the previous year.

Positive Indicators

Along both Wall Street and Main Street, people are looking for signs inflation is easing. Adobe’s findings concerning online prices are certainly a positive sign. But market veterans caution it will take a significant amount of time before price increases start approaching “normal” levels in terms of inflation.

For example, June’s CPI checked in at 9.1% year-over-year. The Fed is hiking rates and effectively raising the cost of borrowing, which has a chilling effect on demand. Even still, if the CPI declines in the coming months, it’s likely to be incremental. From the perspective of the central bank, inflation around 2% is acceptable.

What’s Behind the Decline?

The reason online prices are falling is two-fold. One factor is oversupply, as retailers like Target (TGT), Walmart (WMT), and Best Buy (BBY) have disclosed they’re holding on to excess inventory. Sitting on stale products is bad for their bottom line, so firms cut prices to get items sold.

The other factor is that consumer confidence has fallen, leading to a pullback in spending. That diminished demand also motivates retailers to cut prices in a bid to move items. It’s also worth noting that online grocery prices aren’t slowing down — in fact it’s quite the opposite. The category’s prices rose 13.4% year-over-year in July to set a new record. Consumers will want to buckle up and be patient as ecommerce prices begin to decline — filling up your cart and hitting refresh every few minutes will only net frustration.

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James Flippin ABOUT James Flippin James Flippin is the son of a financial advisor who grew up hearing and learning about bond yields, interest rates, the stock market, and the ins and outs of Wall Street. After stints as a licensing and business broker for Marcus and Millichap in New York City, James moved into broadcasting and became a reporter and anchor. He covered crime, politics, finance, and tech at NBC News Radio while working part-time as a producer for SiriusXM. James graduated from the University of Delaware with a bachelor’s degree in political science and economics. He's also an accomplished podcaster with over 10-years of experience.

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