Prices for online goods in the United States fell 1% in January compared to the year before, the fifth consecutive monthly drop, according to new data that offered evidence of the momentum Federal Reserve officials see lowering overall inflation.
Adobe Digital Price Index (DPI), structured around the same categories of goods in the U.S. Labor Department’s Consumer Price Index (CPI), rose on a month-to-month basis from December to January as a result of steep holiday discounting.
But the year-over-year price drops for goods have been helping pull overall inflation measures lower, the data compiled by the U.S. software company showed.
Patrick Brown, vice president of growth marketing and insights at Adobe, said he felt competition for online sales as well as the impact of inflation on consumers would continue to be felt.
“Current demand levels are driving retailers to hold prices down and continue to clear out excess inventory,” Brown said.
New CPI data is scheduled to be released next week, with economists expecting it to show another slowdown.
Fed officials have been cognizant of the benefit falling goods prices have had in the recent moderation of inflation, and say they will be watching closely to see if that spreads to the much larger service sector, a necessity if inflation is to return to the central bank’s 2% target.
The White House’s Council of Economic Advisers (CEA) on Wednesday published a new study that it says suggests momentum may be developing in that direction.
In recent months, Fed Chair Jerome Powell has focused on the fact that prices seem to still be increasing in core service industries outside the housing sector – among food service and healthcare firms, for example, that make up a large portion of the economy.
Powell has said he regards inflation in those sectors as particularly sensitive to changes in wages, with any moderation in wage growth seen as evidence that the pace of price increases would also slow.
The CEA study tried to isolate the pace of wage growth only in the sectors referred to by Powell and concluded that it is slowing fast.
For the bulk of workers in the so-called “core non-housing services” industries, hourly wages were growing at an 8% annual rate at the start of the year.
The pace is now below 5%.
“Because non-housing services are more labor-intensive than the other categories, some surmise that the tight labor market may be playing a meaningful role in this part of the inflation,” the CEA wrote. Wage growth for production workers and supervisors “have both eased substantially.”