12 Nov 11:07News

Amazon effect' could have impact on inflation dynamics: paper

"Over the past 10 years, online competition has increased both the frequency of price changes and the degree of uniform pricing in different places," said Alberto Cavallo, an associate professor at Harvard Business School, who analyzed how so-called multi-channel retailers are those with brick and mortar and Internet outlets, such as Walmart Inc (WMT.N), responded to the growth of Amazon.com Inc (AMZN.O).
Algorithmic pricing technologies are widespread among both types of retailers, and the transparency of the Internet has also reduced disparities in prices, he said in a paper presented at the annual central banks conference in Jackson Hall, Wyoming. Chairman of the Federal Reserve Jerome Powell is among those present.
A number of Fed policy makers have raised the prospect that relatively low inflation in the US in recent years in a strong economy may be due to the fact that companies such as Amazon can not cover the overall prices.
The Fed's estimated inflation rate, the consumer price index (PCE), excluding food and energy, first hit the second central bank's goal in March for the first time in six years. But there is no indication that it will accelerate sharply, as many economists expect in periods of low unemployment.
The unemployment rate in the United States currently stands at 3.9 percent, while the economy is experiencing sustained growth in what is the second largest expansion in history.
This environment means that retailers should have become more agile, which led to lower profits. For example, Cavallo discovered that Walmart more often changes prices on its website between 2016 and 2018 for products that are also easily available on Amazon.
Last week, Walmart reported sales in the second quarter that exceeded estimates, as more and more customers visited their stores, and an updated website led to online shopping. Walmart's e-commerce sales grew 40 percent, compared to a 33 percent increase in the previous quarter, but gross profit fell in the fifth consecutive quarter.
Cavallo also found that retailers are more susceptible to change in other factors.
"Fuel prices, exchange rate fluctuations, or any other force that affects the costs that can go into the pricing algorithms used by these firms are likely to have a faster and stronger impact on retail prices than in the past," concluded he.

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