Economics: Can We Forget The Word Inflation?

(Drivebycuriosity) - Economists are faced with a riddle.  Oil prices have been climbing, rents are rising and the costs for healthcare are going swiftly up - but there is no inflation. Over the past 12 months the cost of living (consumer prices) advanced only 2%. In April the core inflation rate - without energy & food prices - was 2.1% (marketwatch). Apparently rising energy prices, health care expenses and rents (plus 3.8%) are mostly compensated by falling prices for industrial goods & services.

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I think that the low inflation rates are - at least partly - caused by the Internet, automation & other aspects of the technological progress. Computers and other electronics have been getting cheaper all the time. In many industries are rising labor costs compensated by automation - at least partly. New technologies are reducing the costs of producing & distributing stuff and therefore curb inflation. And many consumer goods are kept cheap because Amazon and other E-Commerce companies are getting more & more efficient which translates into cost savings and lower prices. I call this the Amazon Effect because the e-commerce pioneer is the bellwether of this development.

Since going online Amazon has been been obsessed with efficiency, cost cutting and delivering goods cheap, fast & reliably. They have been constructing a network of huge fulfillment centers which are very efficient and save a lot of costs. Customers spend muss less money & time when they get things delivered at home. Amazon`s rapid growth forces competitors like Walmart,  Target & Costco to act similarly and to become more efficient & to curb their prices as well (Amazon Effect). Today Jet.com, owned by Walmart, and many other e-commerce companies are competing with Amazon which forces them all to sell at low prices.  Even Google & Facebook are participating in the battle for the online customer. As a result everything what can be ordered online is relatively cheap and prices for many goods are falling. This way the Amazon effect is keeping a lid on inflation by partly compensating the rising costs for services like health care & for the climbing rents.

This is good news for the economy because low inflation rates curb the costs for companies and  leaves more money in the wallets of the consumers.