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E-commerce inflation slows for second month

Percentage change in the Adobe Digital Price Index
Data: Adobe Digital Price Index; Chart: Axios Visuals

Online inflation slowed for the second month in a row in May, according to data from the Adobe Digital Price Index Thursday morning.

Why it matters: "E-commerce inflation tends to be a leading indicator of what is going to happen for brick-and-mortar stores because there is less price stickiness in e-commerce," Kairong Xiao, a financial economics professor at Columbia Business School, tells Axios.

Yes, but: "That being said, there could be some differences between online and offline stores in terms of clientele and cost structure that one needs to take into account," Xiao says.

Details: Online prices increased 2% year over year last month, compared to 2.9% in April and a record 3.6% in March.

  • Online prices were down 0.7% in May from April.
  • A majority of the 18 product categories Adobe tracks saw price decreases in May.
  • Overall, consumers spent more online in May. E-commerce sales increased 7.1% versus last year to $78.8 billion. Consumers also spent $1 billion more than in April.
  • As of the end of May online sales so far this year total $377.6 billion, a year-over-year increase of 8.9%.

Yes, but: Grocery overtook apparel as the category leader for price hikes, while consumer electronics and toys continued to see price declines.

Between the lines: "Despite the modest increase in consumer spending online, an uncertain economic climate and rising costs in core areas like groceries are putting a hamper on overall demand," says Patrick Brown, VP of growth marketing and insights at Adobe, in a statement.

  • "Slower consumer spending on discretionary items has driven slower, single-digit e-commerce growth since March, and this pullback mirrors the easing in online inflation," he adds.

The big picture: While Xiao says it's difficult to say how inflation may trend the rest of this year, he explains that "the implied five-year inflation rate from Treasury Inflation-Protected Securities (TIPS) has declined by around half a percent since its peak in March this year, which offers some optimism."

  • "I find it very useful to watch what happens in the e-commerce inflation as a signal of what will happen in the broad economy," he adds.

The bottom line: "I think investors should be prepared for more market volatility going ahead. The Fed is likely to further tighten monetary policy if the inflation stays high. However, the economy and the financial system have become accustomed to accommodative monetary policy," Xiao says.

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