This week the government reported the Consumer Price Index (CPI) jumped 0.4% in April compared to March, and was up 1.1% compared to last year. Economists pounced on the news that inflation is picking up, justifying the Federal Reserve's policy of boosting interest rates.
But Adobe, which recently launched a price-measuring system of its own, says prices are actually falling, not rising. It says its Digital Price Index (DPI), which measures online transactions, points to a continuing deflationary trend.
It's possible, of course, that both are correct. Prices for some things are going up. The cost of other things are going down. As a consumer, it all depends whether prices are higher or lower for the things you consume.
What's going up
April's CPI shows the cost of gasoline went up, along with food prices, education, car insurance, housing costs, and recreation.
But Adobe’s April report for consumer goods prices found deflation between 0.2% and 2.4% for all the categories it tracks. The sole exception was hotel prices, which went up over the last 12 months.
Between March 2015 and March 2016 Adobe's DPI found that prices for TVs, computers, flights, appliances, toys, furniture, bedding, and sporting goods went down between 2.2% and 19.8%. In fairness, the government's CPI tracked similar price declines in those categories – they just had less impact in the overall CPI.
Monitors online purchases
Adobe gets its data by analyzing billions of digital transactions involving 2.2 million products sold online. It says it is able to provide a more accurate picture of what is happening with prices consumers pay.
“With brands rapidly innovating and introducing new products and consumers increasingly shopping online, it’s essential that we have a mechanism to identify digital pricing trends quickly and accurately,” said Mickey Mericle, Vice President, Marketing and Customer Insights at Adobe.
What causes prices to go down? In a word, competition. The money consumers spend on a particular thing gets spread around among a larger number of providers, who must then lower prices in order to win or keep customers.
When there are fewer providers of something, prices tend to go up, producing inflation.
While deflation might sound like a good thing for consumers, it usually isn't in the long run. Businesses that can't raise their prices over time don't grow, and might even close their doors, leading to higher unemployment.