Inflation finally slowed online in April but remained “elevated” overall

Diving brief:

  • April brought the first signs of a slowdown in online inflation growth, according to Adobe’s Digital Price Index, which found online prices fell 0.5% month on month. to another, but were still up 2.9% year-over-year.
  • Prices fell in more than half of the 18 product categories Adobe tracked on a monthly basis. “As the cost of borrowing and economic uncertainty rise for consumers, we are starting to see the early impact on inflation and online spending,” said Patrick Brown, vice president of growth marketing and information at Adobe, in a press release..
  • The federal consumer price index showed prices increased by 0.3% economy-wide month-over-month in April, down from 1.2% in March. Year-over-year April prices rose 8.3%.

Overview of the dive:

Any relief from inflation is a boon to consumers. As for retailers and brands, even the biggest are browsing cost inflation across the business — fuel, products, inputs, and freight, among others.

Margins and profits have held steady or increased for many in recent months, even as costs have risen as companies raise prices for their customers. However, some of the latest quarterly releases have brought disappointing figuresexecutives citing inflation-conscious consumers among other challenges in the macro environment.

Neil Saunders, managing director of GlobalData, called April’s year-over-year CPI rise “extremely high” and “a threat to both consumer spending and consumer confidence.”

Saunders also pointed out in email comments that in April 2021, prices began their steep rise, which means the annual comparison masks the full extent of inflation. On a two-year basis, prices rose 12.8% in April, Saunders noted.

Consumer demand still appears to be quite strong overall. Earnest Research found that consumer spending increased by 3% year-over-year in April, which the research firm said was a further acceleration from March. Breaking these numbers down, in-store spending was up 7% while online spending fell 3% (which might explain the price drops).

The growth in spending has not applied to everyone. According to Earnest Research, spending was mostly down year-over-year for retail, excluding fashion resale, and mass merchants like big-box retailers and warehouse clubs, as well as pet stores and supermarkets.

Inflation also changes how and when consumers spend. In March, clothing inflation rose to a 42-year high of 6.8%, driven by rising costs for textiles, transportation and wages, according to Coresight Research. The research firm found that consumers expect to buy fewer items, seek more discounts and delay non-food spending to cope with higher prices.

Saunders pointed out that many households “have the firepower of high economies and continue to benefit from reduced service spending on things like travel and vacations as pandemic trends still haven’t fully dissipated.

But, Saunders also noted that inflation affects and scares middle and low income people.

“In our data, we see several warning signs,” Saunders said. “Consumer credit and debt are increasing. Volumes of products purchased, particularly in discretionary categories such as apparel, are down. There is a reduced level of impulse buying, especially online.”

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