Prices eroded by global rise in online shopping

ACROSS the world, reviving inflation has stirred hopes that after years of soggy demand, prices may finally be gaining escape velocity.

A dose of inflation, within reason, helps economies grow by boosting company profits – with textbooks telling us wages should follow – and makes debt easier to service, at least until interest rates rise.

The latest reflation burst was sparked last year by a big turnaround in Chinese factory prices and an improving outlook for global growth. But this may not herald a return to inflation as we once knew it.

Unlike previous cycles when prices accelerated and policymakers stepped in to cool demand, a damper this time round is the dizzying pace of innovation in the retail sector.

The rise of online shopping and price-comparison websites has hooked consumers on discounts.

And even when people tear themselves from their screens and make it to the shops, fewer staff and less glitzy stores keep prices down too. It’s a development that economists at an Australian bank have dubbed the “Aldi-isation effect” after the German discount supermarket known for its no-frills approach.

“The cutting edge of retail will continue to increase price competition and thus carry a deflationary drag,” said Richard Yetsenga, Sydney-based chief economist at Australia & New Zealand Banking. “The ‘Aldi-isation’ trend is here to stay.”

PricewaterhouseCooper’s 2017 Total Retail report said that 47% of 24 471 respondents around the world used Amazon.com as a research site for prices.

Japan, Germany, Brazil and the US were the top four countries where consumers shopped less often at brick-and-mortar stores due to the “Amazon effect”.

“Competition has never been fiercer,” said John Maxwell, global retail and consumer leader at the consultancy.

The results can be seen around the world. In the US, the consumer price index for apparel has been going nowhere.

Discounting is probably playing a role in holding down retail wages too, at least in the US where retail shows the smallest 12-month wage gain of all sectors tracked in the monthly US employment report.

Japan’s central bank is desperately trying to stoke inflation, warning last month that cheap cellphone handsets and connection fees were weighing on the consumer price index.

The bank attributed this to intensified competition from virtual network operators.

Investors have been scaling back their optimism for inflation picking up since the start of the year.

China’s consumer prices climbed 1.2% in April, less than half the government’s target of around 3%, even as data from the nation’s dominant bank card network and number two e-commerce platform JD.com show consumption remains buoyant.

Jack Ma, chairman of Alibaba Group, has warned of decades of pain as the internet disrupts economies. — Bloomberg