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PriceStats® Analysis: Inflation Continues to Improve

A look at quarterly measures of inflation, based on prices of millions of items sold by online retailers, to help investors anticipate and evaluate the impact of inflation.

So far, this year looks like a different inflation story. Given the past two years of unusually robust US inflation, the trend in PriceStats in the first 100 days of 2023 made it clear that something was different.

Q2 2023

US Inflation: Disinflation and the Wait for Average Inflation

Consider that online prices rose close to 2% in the first 100 days of 2021 and even faster in 2022. While the outbreak of the Russia-Ukraine war explained some of that move, the trend was strong even before that additional shock, as we highlight in Figure 1.

While the first 30 days of 2023 looked alarmingly similar to the past two years, the last 60 days have trended more closely to the average path of inflation we saw in the decade prior to the pandemic.

This slower trend, relative to last year, means that the PriceStats annual inflation rate is now falling sharply. So far this is mainly driven by base effects. In other words, the stronger readings of early 2022 are dropping out of the calculation. This is welcome disinflation, but we’ll still need to see more monthly readings closer to, or even below, the average inflation trend to be confident inflation is finally normalizing in 2023.

Figure 1: US Inflation Closer to Average

 Figure 1: US Inflation Closer to Average

European Inflation: Trend Looks More Troubling

While the US PriceStats series suggests disinflation may be coming, even if a little slower than hoped for, the eurozone series makes for a more troubling reading.

The trend so far in 2023 is not only significantly above average, but on a par with 2021. Of course, as the jump in prices that followed the outbreak of the Russia-Ukraine war drops out of the calculation, the annual inflation rate will fall. But that will offer little consolation given the robust year-to-date trend in inflation.

Some of this strength relates to still-robust food prices. But, even allowing for this, the trend in underlying inflation excluding food and energy costs sends a similar message. Base effects aside, the euro-zone inflation trend shows few signs of slowing down and is accelerating relative to the US trend.

Figure 2: Eurozone Inflation Still Well Above Average in 2023

Figure 2: Eurozone Inflation Still Well Above Average in 2023

Emerging Markets: Inflation Finally Rolls Over

Inflation took off faster in emerging markets, and central banks responded more quickly than their developed market counterparts. This is becoming clearer in the inflation trend, too. While the level of inflation remains elevated, the rate of disinflation is beginning to accelerate. This is not the result of base effects alone, as monthly prints in some countries are beginning to come in below seasonal averages, especially in Brazil and South Korea.

Figure 3: EM Inflation Declines

 Figure 3: EM Inflation Declines

Lower foods prices are part, but not all, of this story. It’s also encouraging that, in spite of China’s surprise reopening at the end of 2022, our online gauges of supermarket and fresh food prices have yet to show signs of acceleration.

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