May DPI Report: Second Month of U.S. Deflation After a Long Stretch of Rising Prices

In May Adobe’s Digital Price Index (DPI), our analysis of real-time consumer spending based on data from Adobe Analytics Cloud, detected deflation in the U.S. for the second month in a row, on the heels of a four-month run of inflation that was starting to look like a longer-term trend.

“It’s hard to know what the overall trend is right now, and the shifts are causing uncertainty from the top down,” said Sid Kulkarni, data science analyst for the DPI. “The most recent inflation numbers haven’t been providing a steady signal. As such the Federal Reserve Board and other economic policymakers are less certain about the direction of the economy, leading to debates about interest rate votes and other decisions.”

While Sid says that the uncertainty isn’t impacting consumers yet, it may in the future: “Instability and uncertainty in the markets and in economic signals can affect consumers, particularly if changes in interest rates or inflation impact their investments or wages.”

In a Month of Uncertainty, Online Grocery Sales Drove Deflation

The DPI detected deflation in May of -0.3 percent across all product categories. Year-over-year (YoY), prices are down -0.8 percent for all items and -1.2 percent for the all-items-less-groceries index.

May’s deflation was notable in several key categories: prices for furniture and bedding were down -2.0 percent month-over-month (MoM), as were prices in several durables categories including appliances (-1.5 percent), computers (-0.8 percent) and electronics (-0.8 percent).

Grocery prices were down -0.5 percent MoM, driven mostly by dairy products: ice cream and related products (-4.5 percent), eggs (-2.1 percent), other dairy (-1.9 percent) and cheese (-1.7 percent) all saw steep deflation in May.“This month, the price changes in the DPI were mostly driven by changes in the price of groceries online. Groceries account for the largest share of consumer spending across the categories we track, so when those prices change, it has a big impact,” said Sid. “But across the board, we saw uncertain price changes, which we think reflects larger uncertainty about where the economy is headed.”

With inconsistent signals, Sid is keeping an eye on several key indicators in the next few months. “We’re going to look for a steady sign of inflation or deflation. Groceries will be a big indicator, as will flights. Since airfare is subject to price changes based on the cost of fuel, it’s a good indicator of price changes in other categories. If flight prices and groceries start to show inflation, we can feel more certain that prices are rising,” he explained.

Pre-Brexit Inflation Continues, While U.S. States See a Mix

The DPI also tracked consumer prices in the U.K. this month, where preparations for Brexit appear to be stoking inflation. U.K. grocery prices have been rising steadily since September and, as of May, are up 1.7 percent YoY.

May was also the fourth month the DPI tracked inflation state-by-state in the U.S. This new measure shows that U.S. consumers experience inflation differently, depending on where they live. In May, 31 of 50 states and D.C. showed deflation while 20 states experienced inflation. The Method Behind the Numbers

The data behind the Adobe DPI is sourced through Adobe Experience Cloud. It represents 80 percent of all online transactions from the top 100 U.S. retailers, including aggregated, anonymous data from 15 billion website visits and 2.2 million products sold online. Unlike the Consumer Price Index (CPI), the DPI can track real-time prices and quantities of items sold. The data also enable unprecedented views of the U.S. economy, including state-by-state analysis and this month’s deep dive into the apparel industry. And our U.K. data offers a window into how economic trends differ internationally.

Learn more about how the Adobe team developed the DPI and see additional details in regards to apparel-specific data here.