The recently released Consumer Price Index (CPI) shows that New Zealand’s inflation rate is 0.4% compared with 0.1% for the 2015 calendar year. The Reserve Bank’s target range is between 1% and 3%.
But how accurate is our official inflation rate?
The recently released Adobe Digital Price Index in the United States shows that items purchased online are cheaper than traditional store sales and the official US inflation rate is missing this trend.
The Adobe index tracks 1.7 million online consumer goods in real time. It immediately picks up new items and measures price trends in days, rather than months.
Price differences have been quite different, as following;
- The Adobe index shows that television prices fell by 19.8% in the year to February whereas the government index included a 14.9% decline
- Adobe’s online appliance prices dropped by 5.7% compared with a 2.7% fall in the CPI
- Furniture and bedding prices declined by 2.5% in the Adobe index but were only 0.5% weaker in the official inflation measurement.
On the other hand, online grocery prices rose by 0.75% according to Adobe compared with a 0.31% decline included in the US CPI.
Austan Goolsbee, a former chairman of President Obama’s Council of Economic Advisors, said that the Adobe figures suggest that the government index could be understating inflation. He said; “Large parts of the economy are now e-commerce-orientated and Amazon’s prices are much cheaper. If everybody’s doing their shopping on Amazon, then that should properly be taken into account in the inflation rate in a way it isn’t now”.
Statistical agencies have struggled to keep pace with the dramatic increase in cheaper online sales. There is a strong possibility that New Zealand’s 0.4% inflation rate would be lower, or even negative, if online prices were fully included. This would mean that our price increases are far lower than the Reserve Bank’s target of 1% to 3%.
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.