Internet Rising, Prices Falling: Measuring Inflation in a World of E-Commerce

Austan Goolsbee · Peter J. Klenow

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Abstract

The rise of ecommerce and the contrasts between online and traditional retail pricing behavior have raised questions about potential bias in CPI inflation. Using new data on online transactions, this paper shows that aggregate matched-model inflation online from 2014-2017 was more than a full percentage point lower than in the corresponding CPI. In addition, new products were tremendously important. Quantifying the net increase in number of new goods minus the exit of old goods suggests that actual inflation online may have been an additional 1.5 to 2.5 percentage points lower than indicated in matched model price indices like the CPI.

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References

2004Some Evidence on the Importance of Sticky Prices 2003Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers 2010Product Creation and Destruction: Evidence and Price Implications 2016Quantifying the Sources of Firm Heterogeneity *2016Are Online and Offline Prices Similar? Evidence from Large Multi-Channel Retailers 2016The Billion Prices Project: Using Online Prices for Measurement and Research 2010Eliminating chain drift in price indexes based on scanner data

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