Is deflation back?

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This week, Timothy Graf, head of Macro Strategy for EMEA at State Street Global Markets discusses the deflationary impulses in the US economy.

 

“A new metric developed by our PriceStats* team, measuring clothing and apparel sales at US online retailers, gives further evidence of the deflationary impulses in the US economy. Current trends in clothing sales and prices stand out in their extremity, in both absolute and seasonal terms, showing the weakness of demand in what is becoming one of the sharpest, deepest contractions in US economic activity on record. As such, the proportion of items classified as ‘on sale’** is the highest seen in the short history of this series. Clothing price changes in the month-to-date are also the weakest of any April we have previously captured and are very much in line with the deep seasonal discounting that is typically seen in January or July.

 

“In summary, deflation isn’t just an energy-related phenomenon. Some sectors that have supply chain and trade dependences are offsetting the weakness in others but the trend in headline inflation is clear and clothing price weakness threatens to bring core disinflation into vogue.”




*About State Street PriceStats®

PriceStats is a provider of high-frequency global inflation indices and purchasing power parities that offer insights into key macroeconomic variables. The indices are generated using software that scans the underlying code on public websites to capture the full array of products sold by online retailers, including food, beverages, electronics, apparel, furniture, household products, prescription drugs, and over-the-counter medicines. The technology monitors price fluctuations on roughly five million items sold by hundreds of online retailers in more than 70 countries. The PriceStats methodology is grounded in the extensive body of research of MIT professors Alberto Cavallo and Roberto Rigobon and their Billion Prices Project at MIT. Cavallo and Rigobon have leveraged this research and their expertise in monetary economics to develop the PriceStats indices.

 

** PriceStats observes whether the daily price of a unique item is more than 10 percent less than the modal price over the previous 90 days and, if so, classifies it as ‘on sale’. The number of ‘on sale’ items is divided by the total items available for sale.
 

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