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Is Amazon Lowering The Global Rate of Inflation? (businessinsider.com) 146

An anonymous reader quotes Business Insider: Another investment bank analyst has signed on to the idea that the internet is holding down the rate of inflation. Bilal Hafeez, the global head of G10 FX strategy and head of EMEA research at Nomura, published two notes last month on whether the value of the dollar was being held down by Amazon and its ilk. In one note he called it "the Amazonization of inflation"... [O]nline commerce typified by Amazon is making the supply and distribution of goods so cheap that "Amazonisation" itself is now a deflationary force at a macro level, Hafeez argues. He writes: "While globalisation was the meme of the 2000s, this decade's has to be the 'Amazonisation' of commerce. Given the bulk of the cost of goods is distribution costs, Amazon's unique distribution model and widening range of products could impart a new disinflationary impulse on goods prices."

This idea is becoming more popular among analysts as the months roll by. Back in September 2016, we told you about the "Spotify problem," in an interview with HSBC's James Pomeroy. His theory is that the internet allows consumers to shop around and compare prices incredibly easily. It also substitutes cheap digital goods over more expensive physical ones. For instance, people stop paying £20 every month for a CD when they start paying £10 a month for endless music from Spotify. The result is that businesses are aggressively driving down their own prices because consumers simply won't go to the ones that charge more, and are no longer trapped into shopping in their own neighbourhoods. Sweden is so advanced as a digital economy that it may be importing its own deflation via digital shopping, Pomeroy argued.

Is Amazon Lowering The Global Rate of Inflation?

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  • How about discussing how Linux is being used successfully to help businesses?
    • by wiggles ( 30088 )

      Economists are nerds too....

    • That's for nerds. Go away loser.
      • Oh princes, don't get your panties in a twist. I'm certain some intern in Accounts Receivable is cheering just for you.
    • A tech business with enough scale to have a macroeconomic effect? Sure sounds like "news for nerds, stuff that matters" to me.
  • by Z00L00K ( 682162 ) on Sunday October 08, 2017 @02:15PM (#55331835) Homepage

    It all depends on what factors you use to calculate inflation.

    For merchandise possible to purchase via Amazon, Ebay or other similar large scale web source then it's holding down inflation since prices are severely pushed down. But for other merchandise like food and similar that don't do well on Amazon and Ebay then inflation can be quite different.

    • by Anonymous Coward on Sunday October 08, 2017 @02:21PM (#55331865)

      It's not really reduced inflation as much as it is removal of the parasitic layers between seller and end user.

      • by ShanghaiBill ( 739463 ) on Sunday October 08, 2017 @05:02PM (#55332431)

        It's not really reduced inflation as much as it is removal of the parasitic layers between seller and end user.

        It is reduced inflation BECAUSE OF the removal of the parasitic layers between seller and end user.

        • by ceoyoyo ( 59147 )

          It's increased efficiency, which produces downward pressure on prices that counters the normal upward inflationary pressure. But like all efficiency gains, it's limited.

          I assume "amazonification" is just a buzzword. I expect the real improvements are in the logistics algorithms the entire industry uses.

          • It's increased efficiency, which produces downward pressure on prices that counters the normal upward inflationary pressure. But like all efficiency gains, it's limited.

            Bingo, and it is only temporary. And importantly, those middlemen aren't "parasitic" as people say here; they do actually serve a very useful and very important purpose, which is why people pay them. To say otherwise is to have no clue how supply chain management works. Amazon is able to do away with intermediary companies and in-source their supply chain management instead, which is why they can lower the costs. On the down side, the barrier to entry into the retail business has been dramatically increased

    • Amazon is using the classic monopolist approach: sell at unbeatably low prices until you drive the competition out of business. At that point, with no competition you can raise your prices to whatever you like, and, with no competition, people have to pay.

      1 ...
      2 ...
      3. Profit!

      • Please explain why Walmart doesn't own everything already then since they were the previous unbeatable low-prices outfit that wanted to drive out all of the competition.
      • by squiggleslash ( 241428 ) on Sunday October 08, 2017 @04:33PM (#55332327) Homepage Journal

        Amazon hasn't been the cheapest for a long time now. What's making people stick with Amazon is that they offer a better service overall. I know that if I start looking there, I can almost certainly find what I want, the price will be reasonable - Walmart and eBay will usually offer slightly better prices for generic goods, but not significantly - and I'll get the product in two days delivered to my door.

        They're no longer competing on price, they're competing on the entire experience.

        Walmart has the business model you're referring to, but they've had limited success with it, largely because the whole experience involves shoddy goods, frequently abusive customer service, long lines, and dirty stores. You have to do more than compete on price.

      • Amazon is using the classic monopolist approach

        Amazon is nowhere close to a monopoly, and predatory pricing [wikipedia.org] only works when there are high barriers to entry. Online retailing has very few barriers to entry. Anyone can slap together a website and start selling stuff. The barriers are going down rather than up, as we move toward more secure online payments.

    • The markup on food is probably as low as it's going to go. Other things such as automation might bring it down a little, but even with manual labor, the overhead is quite low.

      Think of someone picking onions. You could pick 1,000kg/hr. If you paid someone $100/hr to pick onions, that would only be adding 10 cents/kg. A person goes into the store to buy some onions, changing the price by 25cents/kg is not going to alter anyone's purchase plane.

      • If adding $0.25/kg wouldn't make a difference in anyone's purchases then why isn't it already that high?

        The answer, by the way, is yes, it does. Maybe not you, maybe not anyone you know, maybe not even a statistically significant number of people -- but still a nonzero number of people, and enough for the price to be set accordingly.

    • by ABEND ( 15913 )

      Maybe deflation is occurring because businesses that Amazon.com is competing with are filing for bankruptcy protection or defaulting on loans because they're losing business to Amazon.

      Loan defaults and bankruptcy makes "money" disappear and that is deflation.

    • by fubarrr ( 884157 ) on Sunday October 08, 2017 @05:17PM (#55332481)

      >Is Amazon Lowering The Global Rate of Inflation?

      No, but Alibaba does. Amazon is all but a bug splat in comparison to Alibaba. The analyst who wrote the article does not see the elephant in the room.

      While Alibaba is already really big with small importers in US, it is even bigger in developing countries.

      • by hjf ( 703092 )

        I'd risk saying neither do.
        Amazon does not operate even remotely of what you could call "worldwide". They are only big in Europe and the US, that's hardly enough to cause a "global deflation" rate.

        Alibaba, are you talking about the "wholesale" alibaba that doesn't compete on the same market as Amazon, or are you talking about Aliexpress which sells little irrelevant things?

        You see, online shopping needs a credit card. That's the default. The de facto standard. But that's not something everyone has. Just a f

        • by Hadlock ( 143607 )

          It seems like the biggest hurdle for Amazon in other countries is that most other countries' parcel delivery systems are a total gamble as to whether or not your package (pick two):

          A) arrives within one month
          B) arrives without damage (physical drop/crush or water)
          C) arrives at all

          If amazon manages to figure out air delivery between warehouses (currently they're chartering two jets full time) and delivery services (they have their own fans/delivery employees in 5+ major cities in th

          • by hjf ( 703092 )

            It seems like the biggest hurdle for Amazon in other countries is that most other countries' parcel delivery systems are a total gamble as to whether or not your package (pick two):

            A) arrives within one month
            B) arrives without damage (physical drop/crush or water)
            C) arrives at all

            Doubt it. That's true only for international shipping. Most countries have a relatively developed post system that can deliver parcels. Especially to urban areas, where internet access is available. Sure, packages t

        • Alibaba group as a whole, other than aliexpress, and wholesale, they have a dozen mammoth sized Chinese language marketplaces + Lazada + other wholesale marketplaces and on and on

    • Inflation is not increased prices; Increased prices are frequently the result of inflation. Inflation is increase of the money supply, sometimes called "watering the currency".
  • by Anonymous Coward

    TFS: the idea that the internet is holding down the rate of inflation. Bilal Hafeez, ... published two notes ... on whether the value of the dollar was being held down.

    Confused dog is confused. Holding down the rate of inflation implies keeping the value of the dollar up.

    • The value of a dollar is what you can get for it. If you can't get as much for a dollar these days, it's inflation. If distribution systems become more efficient, or you can get better information about costs, you can get more for a dollar rather than less.

  • No (Score:5, Interesting)

    by Anonymous Coward on Sunday October 08, 2017 @02:39PM (#55331941)

    Science and technology are lowering it. We are slowly going to have to face the fact that our economic and social models are obsolete. We will have to accept that not everyone needs to work and we are in an ocean of abundance, but forcing each other to operate as if it's the Bronze Age.

    As usual, it's not the countless scientists and engineers that designed and built the machinery that allows this abundance, instead, we focus on one person who had nothing to do with it, and he gets all the credit.

    • by chihowa ( 366380 )

      As usual, it's not the countless scientists and engineers that designed and built the machinery that allows this abundance, instead, we focus on one person who had nothing to do with it, and he gets all the credit.

      Science and technology are not a product of the ultra-wealthy and we need to shed the collective delusion that being wealthy is somehow correlated with generalized intelligence or an interest in progress. Technology, especially as a tool for saving labor, is most useful for those who can least afford labor and has done way more for improving the lives of commoners than the wealthy.

      Their interest in it, nerdy exceptions like Musk aside, is focused on improving the productivity of their profit generating mach

      • Inventions happen whether there are wealthy patrons or not. Most inventions are not from "big labs", but rather either serendipity, or some technician trying to solve a specific problem for a specific product. I bet there would be more innovation if we didn't have a patent system. Smaller co's would be able to mix and match existing ideas without paying an arm and leg in royalties to conglomerates.

  • ... the banks can used borrowed money to help you drive the price out of your reach. All that money saved on amazon is soaked up by interest payments on your house.

    Then the market crashes, the banks get the houses, and hold them off the market until the next crop of suckers is ready to pay too much for fear of being left out.

    Rinse, repeat.

    • at least not in the United States. Here it's our aging population who've had their pensions and retirement funds raided the last 20 years. They've still got their savings though and they're using those to buy houses to flip and/or rent. That's also what caused the 2008 crash and why it was so bad. It wasn't poor people buying houses they couldn't afford. Those folks tried tooth and nail to hang onto their homes. It was upper middle class who'd over extended themselves in the house flipping market. When it b
      • by lenski ( 96498 ) on Sunday October 08, 2017 @05:03PM (#55332435)

        Hello, baby boomer here...

        I wish I could criticize your post beyond being a bit exaggerated...

        There are huge numbers of boom-generation people hanging on to what remains of their work lives and careers by the last millimeter of their fingernails. Add to that the fact that there's no such thing as a "savings account" any more: The only way to not fall behind inflation (see paragraph below) is to "invest" in equity, bond and/or international markets. Those markets are gyrating madly and some who needed to see a bit of safety for their 10 year money bought into the real estate market. They hope to put their hard-earned savings into a material investment vehicle they could see (and not evaporate suddenly), that should at least keep up with inflation. Some of them bought into the explosive adjustable rate mortgages, having been lied to by the fuckheads selling those (IMHO) fraudulent loans. My wife and I bought a house (using our 30+ years of savings) for that reason, though we would never get sucked into such a sick excuse for a loan.

        Now about inflation: I think I agree that easily shippable goods have experienced reduction of inflation due to the Amazons of the world. But let's not be confused about "inflation". My wife and I have experienced increases in the costs of stuff we cannot do without far far in excess of "inflation". These things are things that cannot be shipped from countries engaged in "the race to the bottom": Medical insurance, taxes (property, sales, etc.), communication (I am a developer, my wife is a psychologist. There is no business without it.) We are grateful that another source of monstrous and damaging inflation, education (also local and increasingly profit driven) is not killing us financially as it is so many others.

        My observation is that inflation has developed a bimodal distribution: services that can only be acquired locally have a high inflation rate, while goods or services that can be globalized have a low inflation rate.

        Bottom line: Some unwise boomers didn't save and may have taken advantage of the bullshit loans, which contributed to the meltdown; I suppose the temptation of a McMansion might be part of it. I pin blame for the meltdown on the lying thieving bankster fuck heads (if I believed in Hell, they belong there, they knew exactly what they were doing to their mark^H^H^H^Hcustomers). There are also "wise" boomers that have savings who are getting fucked over by the lack of any investment vehicles that can be trusted in less than 20 year time horizon.

        • It wasn't the boomer's McMansions that caused the crash. It was their desperate attempt to secure their finances after their pensions were raided by the Bain Capitals of the world.

          I suppose there's a case to be made that the Boomers allowed the deregulation that made that kind of pension raiding possible, but well, there was just a Nobel prize given out for why people make bad decisions. For esoteric financial regulations it can be surprisingly hard to keep them intact, especially when you have multi-mi
  • by TWX ( 665546 ) on Sunday October 08, 2017 @03:16PM (#55332051)

    For instance, people stop paying £20 every month for a CD when they start paying £10 a month for endless music from Spotify.

    This assumes that people generally buy music monthly, and that the music costs a certain amount. It also assumes that the same selection is available on Spotify as in the record store.

    When I buy music on a physical format, almost exclusively CD, it's almost always used. If it's not used it's because it's a new release and is not available used, and if my interests are not top-40 or top-100 then it's probably not available on Spotify either.

    I'm going to hazard a guess that Spotify isn't displacing as much physical media or purchased media files as it is listeners of satellite radio and FM radio, where listeners got tired of excessive numbers of ads or of not getting enough of the music that they want, or of paying for stations that they don't listen to.

    It's often commented that 80-90% of one's business comes from 10-20% of one's customers, the die-hard, repeat customers. Based on my own observations, with music this seems to hold true. Sales to the very occasional buyer of an album are not insignificant, but they're not as important as sales to those who feel that they are connoisseurs and make regular purchases. Those in the latter group are probably going to still buy, it's the casual buyers that will be lost to services.

    • I still buy music on CDs. Quality is better when listening on good equipment and I always have the option to rip CDs for the times I go running or hiking (I don't have Spotify on my iPod shuffle).
  • Walmart has been having the same effect (one of many) since the mid 90s.

    Why name this after Amazon?

    • Because the article is about "global" deflation, and while Walmart has bought a few chains outside of the US, it hasn't turned them into Walmarts. Its reach, for the most part, is North America, not the entire globe.

      Amazon? They're not everywhere, but they're in the vast majority of significant economies.

      • by hjf ( 703092 )

        What the hell are you smoking?
        Walmart is global. They're everywhere. They are HUGE in China.

        Outside US, Amazon is tiny. In Asia they are just irrelevant.

        You see, son, you think only USA and Europe matter. But you're wrong. Set foot in Asia and see where the future is.

  • by knorthern knight ( 513660 ) on Sunday October 08, 2017 @03:47PM (#55332185)

    * Transit fares have gone up continuously; e.g. https://globalnews.ca/news/235... [globalnews.ca] And pennies have been withdrawn from circulation in Canada

    *A new 1974 Ford Maverick, V8, automatic transmission cost under $4,000 in Canada, and probably around $3,000 US. Try getting a 2018 Ford Focus for under $20,000 today.

    * Food prices have kept rising continuously

    * Rents and housing getting unaffordable here in Toronto

    * Cable bills keep shooting upwards, which is why "cord-cutting" is now a thing

    * A new 50 inch plasma TV was $3,500 in 2007 dollars. Today a 50 inch LED TV can be had for $300

    * A basic IBM PC with 640 KILObytes of ram, 10 MEGAbyte disk drive, and 320x200 siaplay CRT came in at around $5,000 in 1983 dollars. Today's $1,000 machines walk all over it.

    Problem... you can't live in a PC or TV; you can't eat a PC or TV; you can't ride to work in a PC or TV. The upper or upper-middle class are better off today (what's left of the middle class, but that's another story).

    Meanwhile. a lot of ordinary people, especially those in minimum wage jobs, have extreme difficulty paying for basic necessities. Is there an inflation index for necessities, i.e. food/shelter/clothing and transportation? And by transportation, I mean local stuff. A flight to Hawaii might cost less today, but the average person is more worried about commuting to work, and getting around town.

    • While I agree with some of your points, Amazon didn't exist in 1974. If you were to look at their effect, you'd have to limit yourself to the 10-15 years they've been operating as a significant international player. But yes, it makes sense they're only effective in the markets they operate in, ordinary consumer goods, rather than cars, etc.

      Cable bills? That's a tough one - you say "They're rising hence cord cutting is a thing", but Amazon is one of the companies that's involved in that cord cutting and m

    • by Kjella ( 173770 )

      Meanwhile. a lot of ordinary people, especially those in minimum wage jobs, have extreme difficulty paying for basic necessities. Is there an inflation index for necessities, i.e. food/shelter/clothing and transportation?

      Sounds like a difficult figure to calculate, but you can look at percentage of spending. The lowest quartile [usda.gov] spend ~35% of their income on food and that's relatively stable. In 1992 [aaa.com] the AAA's driving cost gave a composite index of 38.8 cents/mile for 15k miles, which put into an inflation calculator is 67.9 cents in 2017 dollars while for 2017 [aaa.com] it's 56.6 cents. Basic clothing I didn't really find any great statistics for and is hard to separate from design and fashion clothes but labor costs [bls.gov] have been pretty

    • The price rise from $4,000 to $20,000 over 43 years is below 4%/year, and you're getting a somewhat better car. The focus is available in a rage of prices, from $13650 to $36995.

      4% a year is not outrageously high, although it is excessive: should be zero.

      • The price rise from $4,000 to $20,000

        The Ford Maverick ($4000 in 1974) was not an entry level car. It was a high performance car. The Ford Focus ($20,000 now) is an entry level car

        To get a real comparison, you would need to determine what 2017 car is the equivalent to the 1974 Maverick. I don't know.

        However, according to http://www.usinflationcalculat... [usinflatio...ulator.com] $4000 in 1974 would be almost $20,000 in 2017. I'm sure that whatever the equivalent 1974 car to the 2017 Focus was less than $4000.

        • Ford Maverick was a piece of junk, maintenance-wise. Most of today's cars are far more reliable than the 1970's, and thus I'm not sure it's an even compare. But I have noticed that minivan prices seem to either be dropping or staying below inflation for the last 20 years.

          Another thing is, since cars last longer, most "low end" car shoppers buy used. It's value depreciates quickly the first few years. Today's 5 year old car is probably on par or better than the reliability of new cars of the 70's. Therefore,

  • by Anonymous Coward on Sunday October 08, 2017 @03:48PM (#55332187)

    1. Return on savings accounts: Abysmally low.

    2. Have you seen a decent raise since the 80's? Not me... Not anyone I know. All decent raises happen at the C-level and above.

    3. Have you noticed the price of housing, education and heath care are all skyrocketing? These are the essential things everyone needs. Will food be next?

    4. What about that trend towards precarious employment (temps, gig work, etc.) have you been affected? Jobs are essential too.

    5. All the stuff not required to live decently has not been inflating... (Well maybe except for cable TV, airline fares, and insurance).

    6. Have you noticed the hyperbole in politics? This is a distraction to keep everyone from noticing the detrimental changes to society.

    7. Have you noticed the government can't get anything done? Me too.

    8. Have you noticed a trend to marginalize the rights of ordinary citizens? (Binding Arbitration, Non-compete agreements, Federal preemption)

    9. Have you noticed a rise in hate groups, and religious zealotry, as well as attacks gay and transgender people? Hmmmm, this is like Germany in the 1930's.

    Something nasty is bound to happen soon.

    • A savings account is one way a bank borrows money from its customers. When a bank can borrow huge amounts of money from the Fed at below 1%, why should it go through all the nuisance of dealing with a great many savings accounts and pay substantial interest on those accounts? This is entirely the government's fault.

      The rising prices of housing, education, and health care are all the government's fault.

      You yourself identify politics/government as a problem in (6), (7), and (8). If a problem is caused by gove

    • by Anonymous Coward
      I'm watching the whole 'kneeling' drama going on in the NFL, with Pence leaving the Colts and 49ers game early. On the surface it seems to be about racial injustice, but I believe there are much more serious underpinnings of national dissatisfaction. There is so much crap going on that isn't right and the powerful are starting to lose control, and that's why they are unhappy about it. So much more frequent riots because of this injustice or that. It's all building into a larger attitude of fighting agai
    • Of course savings accounts are crazy low interest rate. The Fed is artificially propping up both the housing/loan market and the stock market making sure you put your money their for decent returns and cheap loans to keep spending up.
  • Anytime the scale is increased and there is a competitor (both Walmart and the "competition" of all brick and mortar versus online are Amazon competitors), prices will be under pressure to stay low and can be kept that way in this case both by reduction in costs (no store fronts in prime locations) and by voluntary reduction in profit margins.

    This is nothing new. If you look at what we have today versus 50 years ago from an absolute point of view instead of a relative to others of the same day point of view

  • Global competition, cheaper prices, customer choice - aren't these the very tenets of Capitalism that has been lauded for so long? So now *too much* Capitalism is a bad thing?
    • by Anonymous Coward

      yes, except make-believe credit stolen from people who are rightfully owed it in the first place ...is more like inland piracy on a global basis.

      (maxim of law, common law of the land paraphrase "he whose assets are at risk [for a loan] should receive the benefits thereof" www.dict.org "maxim", bouviers law dictionary)

      actual capital...means something of substance. "Credit" is when you are short...you come back later and pay with gold (e.g. see clint eastwood preacher movie, i forget the title).

      in this case,

    • by Anonymous Coward

      basically, if it was actual capitalism theyd be paying us silver and gold coins...but, they are all bankrupt for over a century (world over).

      so, they steal everyones credit, pool it together in "socialist" fashion so it is centrally-managed and they can purposely "inflate" as needed or "deflate" to force "full employment" etc. , and make everyone work for what is already legally and lawfully theirs. they just dont tell anyone that.

      so, it is more like "they are all bankrupt, and refuse to pay their debts,

  • There was a time 300 years ago when food was over 50% of a median person's spending. For 250 years the price of food dropped but now it only makes up a small portion of the basket because I can only eat so much. Housing on the edge of a city hasn't gone up faster than inflation and if we define the cost of housing in terms of distance to the edge of the urban area it isn't going up that fast. One other point about housing in North America is that the amount of space per person has increased significantly. S
  • What a lot of people aren't seeing is that Amazon is slowly working towards removing all of the overhead involved in distribution of goods. Eventually, Amazon's private air cargo service can pick up a few pallets of Chinese manufactured goods directly from a supplier it practically controls, ship them on their own carrier to their own warehouses, and eventually use their own delivery service to get them to your door. At every step in this process, they've removed overhead and labor form the process. The sup

  • by inking ( 2869053 )
    I am not fully getting the link he is trying to establish. Inflation is a result of increased monetary supply, which has been controlled by the central banks—depending on how you want to see it—the *latest* with the introduction of the floating exchange rates. This article makes it seem like inflation is somehow reduced by increasing productivity, specifically by reducing the costs of basket products as opposed to increasing their quality, i.e. cheaper things of the same quality every year rathe

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