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After months of prices rising at historically high rates, there were signs of some easing in the upward march of inflation in July. However, food prices remain on the rise.
Here are the latest numbers for July 2022 for the economy as a whole, and ecommerce:
Inflation's rise slows
The heat of the summer brought a cool down for inflation.
The Consumer Price Index registered an 8.5% increase on a yearly basis in July, according to the US Bureau of Labor Statistics.
This was down from a 40-year-high increase of 9.1% in June, offering signs that the rapid rise of inflation over recent months may be starting to slow down.
Prices overall were flat month-over-month. But the cooling owed mostly to falling gas prices, which fell 7.7% month-over-month.
That was enough to offset a 1.1% rise in food prices from June to July. Food offers a reminder that inflation is still rising at rates not seen for 40 years. The food index increased 10.9% over the last year, which was the largest 12-month increase since the period ending May 1979.
Consumer Price Index, 12-month percentage change. (Source: US Bureau of Labor Statistics)
So-called core inflation, which leaves out the more volatile food and energy indeed, increased 5.9% on an annual basis and 0.3% monthly, according to the BLS. The monthly increase was smaller than April, May or June.
Among consumer goods categories that showed movement, household furnishings prices rose 0.6% after increasing 0.4% in June. Personal care was up 0.4%. Meanwhile, apparel prices fell 0.1% after rising the prior two months.
While the CPI provided some signs that price pressures are beginning to ease, the monthly measure is simply a snapshot. It could show inflation's rise slowing this month, only to tick up again next month. That dynamic was evident from March to April, when a one-month slowing in price increases gave way to a new 40-year high of 9.1% in June. However, falling gas prices that have been observed throughout the summer will buoy hopes that inflation has peaked. However, the CPI offers a reminder that gasoline prices remain 44% higher than a year ago.
The Federal Reserve has taken action to get prices under control with back-to-back interest rate increases of 0.75%, which are unusually large hikes for the central bank. After the latest increase in late July, Fed Chairman Jerome Powell said that it may take months before the effects of the interest rate hikes are evident. Powell has said price stability is the body’s top priority as it seeks to prevent inflation from taking hold within consumer mindsets.
The Fed has said it would take decisions about further increases meeting-by-meeting, and base it on the data that becomes available in the meantime. Before it meets in September to consider any additional action, there will be another CPI release, as well as the July personal consumption expenditures index data, which is the central bank's preferred inflation measure.
Even as inflation begins to come down, it's worth remembering that the conditions it created are likely to remain in the months ahead. On earnings calls to recap the second quarter, public companies in the retail and consumer goods space have detailed outlooks that include continuing declines in consumer demand.
"We are keenly aware of what's happening around us. We anticipate that inflation and the continued softness in consumer spending on goods will persist through the remainder of the year," said Shopify CFO Amy Shapero told analysts on the ecommerce company's earnings call.
Deflation in the Digital Price Index
Adobe Digital Price Index: 2015-present. (Source: Adobe Analytics)
Online inflation data from Adobe Analytics showed that ecommerce prices were falling so precipitously that they are entering a deflationary period.
According to the Adobe Digital Price Index, online prices in July dropped 1% year-over-year. This came after a 0.3% increase in June and 2% increase in May. Prices fell 2% month-over-month.
The index, which analyzes one trillion visits to retail sites and over 100 million SKUs across 18 product categories, had previously shown 25 straight months of rising prices. Put another way: deflation is showing up for the first time in two years.
Ecommerce prices fell amid a complicated environment that mixes sagging consumer sentiment, an influx of inventory, deal events around Prime Day and the start of back-to-school shopping season.
Adobe said consumers spent $73.7 billion online in July, which was $400 million less than the prior month. However, Prime Day drove a 20.9% increase in ecommerce spending on a year-over-year basis.
In all, prices fell in 14 of the 18 categories tracked by the index on a month-over-month basis. But on a year-over-year basis, prices increased in 11 of the 18 categories. Here are a few highlights:
- Electronics, which hold the largest share in ecommerce saw prices fall 9.3% year-over-year, marking a larger increase than May and June. Toy prices also fell 8.2%.
- Apparel prices fell 1% year-over-year, marking the second consecutive month where prices fell. Until June, apparel posted 14 straight months of price increases.
- Food costs led to rising prices in this index, as well, driving the highest increase in any category. The Digital Price Index showed a record 13.4% increase in food prices year-over-year.
“Wavering consumer confidence and a pullback in spending, coupled with oversupply for some retailers, is driving prices down in major online categories like electronics and apparel,” said Patrick Brown, Adobe’s VP of growth marketing and insights. “It provides a bit of relief for consumers, as the cost of food continues to rise both online and in stores.”
The full chart showing pricing category changes is below
(Source: Adobe Digital Price Index)
Grocery inflation reaches record high
With prices continuing to rise, it's worth clicking into specific categories. That's what market research firm Numerator did in a report for July.
For one, it detailed grocery inflation, which is distinct from the CPI's "food at home" and "food away from home" indexes.
Grocery inflation reached a record high in July, as prices rose 15.4% year-over-year, per Numerator. In particular, the snacks and beverages categories outpaced overall grocery inflation. Both have doubled since the beginning of the year, with snacks prices rising 19% and beverages up 18.1%. Online grocery prices rose +25.7%, said Numerator.
Health and beauty inflation rates doubled in four months. The spike to a year-over-year increase of 18.5% for July in this category had doubled April's 9% increase.
Household products rose 21.6% in July on an annual basis. The biggest increases were noted in household cleaners, and paper and plastic products.
Taken together, the data reported this week indicates that inflation's rise could be starting to ease. But food prices continue to rise rapidly, and that's an important point to underline. Given the importance of the food category to daily lives and its impact across grocery, CPG and restaurants, food could replace fuel as the category to watch.
Trending in Economy
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.