How Amazon Helps to Lower the Rate of Inflation

Amazon might be lowering the rate of inflation globally. Business Insider reported:

Another investment bank analyst has signed on to the idea that the internet is holding down the rate of inflation. Bilal Hafeez, the global head of G10 FX strategy and head of EMEA research at Nomura, published two notes last month on whether the value of the dollar was being held down by Amazon and its ilk. In one note he called it “the Amazonization of inflation.”

Online commerce typified by Amazon is making the supply and distribution of goods so cheap that “Amazonisation” itself is now a deflationary force at a macro level, Hafeez argues. He writes: “While globalisation was the meme of the 2000s, this decade’s has to be the ‘Amazonisation’ of commerce. Given the bulk of the cost of goods is distribution costs, Amazon’s unique distribution model and widening range of products could impart a new disinflationary impulse on goods prices.”

This idea is becoming more popular among analysts as the months roll by. Back in September 2016, we told you about the “Spotify problem,” in an interview with HSBC’s James Pomeroy. His theory is that the internet allows consumers to shop around and compare prices incredibly easily. It also substitutes cheap digital goods over more expensive physical ones. For instance, people stop paying £20 every month for a CD when they start paying £10 a month for endless music from Spotify. The result is that businesses are aggressively driving down their own prices because consumers simply won’t go to the ones that charge more, and are no longer trapped into shopping in their own neighbourhoods. Sweden is so advanced as a digital economy that it may be importing its own deflation via digital shopping, Pomeroy argued.