Is Amazon To Blame The Fed Can't Hit Its Inflation Target

Tyler Durden's picture

It's been a bad year for inflation forecasters: every month this year, economist consensus has expected core CPI to rise by 0.2% and every month since March, that figure has proven to be too high, resulting in 5 consecutive inflation misses and the weakest stretch of core inflation growth since 2010.

Tomorrow's CPI print, however, should finally break the spell: following a stabilization in cell phone plan costs, a rebound in hotel prices, and the ongoing weakness in dollar, should make tomorrow's 0.2% core CPI forecast easier to achieve. And while year-over-year core growth is expected to slow to just 1.6% , the weakest since January 2015, Fed officials - having telegraphed a December rate hike - have indicated they’re looking more closely at the month-to-month trends for hints on what inflation will do next.

“Inflation matters for the December decision, which is still very much up in the air,’’ Jonathan Wright, an economics professor at Johns Hopkins University and former Fed economist told Bloomberg. If core price gains remain low through the end of the year, “it would be too hard to insist that inflation is still on track.’’

Headline inflation is also expected to come in a tad stronger: 0.3% M/M the highest since January, and 1.8% year-over-year due largely to a jump in gasoline prices following hurricane Harvey. “The core inflation numbers are going to be some of the lesser-affected of the key data between now and December,” said Stephen Stanley of Amherst Pierpont.

And yet, while countless algos will react within nanoseconds of tomorrow's CPI print, with a laser focus on whether tomorrow’s US core CPI will come out at 0.1%, 0.2% or 0.3%, it is easy to lose sight of the bigger inflation story. Simply put, inflation has been trending down across the major economies for decades. Take the US, each decade has seen inflation average as follows:

  • 1970s: 7.1%
  • 1980s: 5.6%
  • 1990s: 3.0%
  • 2000s: 2.6%
  • 2010s: 1.7%

A similar pattern can be seen in Europe and Japan, though the latter seems to have settled around zero for the past two decades. Returning to the US, a big contributor has been a strong decline in goods inflation to around zero since the early 2000s. Meanwhile, services inflation has fallen but at a much slower pace and seems to be settling around 2%

As Nomura's Bilal Hafeez writes, it comes as no surprise that the early 2000s saw a major expansion in US (and world) trade with China. Indeed, President Clinton with the help of Republicans in Congress passed legislation to normalise trade relations with China in 2000. Soon after that, trade with China increased substantially, which helped put downward pressure on goods inflation. While there has been rhetoric from the current administration about reversing some of these measures, nothing has passed. Moreover, US trade is also increasing with other low-cost Asian producers, such as Vietnam, which is now the fifth largest net goods exporter to the US. Vietnam has not so far featured in any anti-trade rhetoric.

Still, tomrrow's numbers matter particularly for what the Fed will do next: with core inflation stubbronly below the Fed's 2.0% core traget, FOMC members have been scrambling to justify they ongoing rate hike in light of persistent price weakness. "Fed policy makers seem to believe that inflation weakness is temporary, and they are probably right on that,” said Roberto Perli of Cornerstone Macro LLC in Washington. “But the more weak data we get, the more uncertain they will be about that interpretation and therefore the higher the likelihood of a postponement.”

One key factor, however, which may spoil the party and keep inflation prints depressed is the deflationary impact of technology in general, something even the Fed has admitted in recent months, and the role of tech giants like Amazon in particular.

Discussing this issue, Nomura writes that while globalisation was the meme of the 2000s, this decade’s has to be the “Amazonisation” of commerce. Hafeez takes the argument further, and while ascribing  to Amazon much of the good disinflation in recent years, suggests that one solution would be to weaken the dollar, i.e., go back to square 1 and either cuts rates or engage in QE.... just to offset the effect of Amazon!

 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. There may already be signs of that if we compare the expected growth at Amazon with that of more conventional retail outlets as expressed through their relative share prices (Figure 3).


So what can policymakers do to generate inflation? Services inflation is already around 2% – with the bulk of services accounted for by housing, medical and education costs, further increases may not be politically viable. That leaves raising goods inflation. But the forces of global trade and Amazonisation are unlikely to turn soon, barring some kind of breakthrough for President Trump in accomplishing political goals.


The most obvious step, then, could be to weaken the nation’s currency. It worked for Japan when Abenomics was first launched with a weak yen in 2012 (inflation rose as high as 1.7% by 2014), and recently the weak pound has helped propel UK inflation to close to 3%. For the US, it’s noteworthy that goods inflation appears fairly tied to the dollar cycle – so a weak dollar in the 2000s saw inflation rise, while dollar strength since 2012 has seen goods inflation fall (Figure 4).


But is it really Amazon's fault the Fed can't hit its inflation target

Conveniently, that is just the question posed recently by Capital Economy in a recent research report. What it found is that, contrary to FOMC members seeking an easy scapegoat, it's not Jeff Bezos' fault why the Fed has failed at one of its two key mandates for nearly a decade. As Capital Eco's Paul Ashworth writes:

The drop back in core inflation to well below the Fed’s 2% target this year has prompted claims that prices are being held down by structural changes linked to the growing importance of online sales. With Amazon also regularly in the news recently thanks to its surging revenues and stratospheric stock price, it is understandable that people have put two and two together. Unfortunately, the data simply don’t support the theory that competition between online sellers and traditional bricks and mortar stores explains the low level of inflation.

A breakdown of his argument:

  • The shift to online sales is having a transformative effect on the retail industry, but does not explain the weakness in core inflation, either this year specifically or the Fed’s more general failure to hit the 2% target in recent years.
  • Online retailing should be boosting productivity, since it eliminates the cost of running expensive stores in prime locations and reduces staffing needs. Those productivity gains should be reflected in lower prices. But goods prices have been falling since the early 2000s, when production was first outsourced to low-cost developing countries and behemoths like Walmart unleashed their own efficiency revolution in the retail sector.
  • Thanks to the rapid growth in non-store retail sales, the proportion of total retail sales accounted for by e-commerce has doubled since 2010. But it still accounts for a relatively minor 8.4%. Looking at Amazon specifically, its recent performance has been undoubtedly impressive. Nevertheless, Amazon’s importance within the overall US retail market still pales in significance to more traditional retailers. Even after years of strong growth, Amazon’s revenues are still only one-fifth of Walmart’s.
  • The biggest categories for online sales are clothing, furniture & home furnishings and electronics. Looking at price inflation for those top three categories, a mixed picture emerges. There is little evidence that clothing prices are falling more rapidly now. In contrast, there is perhaps some evidence that prices for household furnishings and sporting goods have been falling at a slightly faster pace over the past five years. Before we conclude that is due to structural shifts in online versus bricks and mortar stores, however, it is worth bearing in mind that the dollar’s strength has also probably played a role.
  • In the services sector, e-commerce now accounts for almost a third of revenues in air transportation and travel agencies. But airline fares are still being driven almost entirely by fuel prices. Despite the explosion in private short-term rentals through sites like Airbnb, hotel room rates continue to rise.

In short, CapEco finds that "the drop off in core inflation this year is mainly due to transitory factors", not Amazon, and as a result, "it will rebound next year as those factors fade and the dollar’s weakness begins to feed through."

Or at least it should.

Meanwhile, if tomorrow's CPI is the 6th consecutive miss, the Fed would be better advised to look at its own erroneous decision-making, its faulty models, and the flawed CPI basket construction, the before trying to once again pin the blame on some external force.

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wisehiney's picture

You treasury bond shorts never get tired of being burned.



You had better check out that China credit impulse.

ET's picture

Still hanging on to TLT?

wisehiney's picture

Praying that it sells off tomorrow morning on some bogus CPI number.

I always keep a big core position and trade around it.

Badly need to reload after taking profit last week.


ET's picture

TLT isn't that bad.

It correlates with Gold in the short-term (holding for less than a year). If I hold US Treasurys it's usually iShares SHY ETF or Vanguard's BSV ETF.

I'd rather hold those than a large amount of cash in a checking account.

wisehiney's picture

Be right and sit tight.

Get paid to wait.


ET's picture


If I have three to six months of living expenses in cash, keeping the money for months four to six in TLT, SHY or BSV is what I would sometimes do. That is, if it looks like the markets will not close for extended periods and there is no imminent maxi-devaluation of the currency.

This is what banks usually purchase anyway when people put money in their savings account, except you get more of the interest payments.

wisehiney's picture

The dividend ain't much, and it helps that most states do not tax treasury interest, but with some work and practice, one can figure out how to add some nice cap gains.

But you gotta pay close attention.

Good luck.

ET's picture

I would actually hold for the capital gains, not so much for the dividends.

This is a wife-friendly kind of investment.

You're going to need enough cash anyway to cover about six months of living expenses so why not make a bit of capital gains out of it. Increases in monthly living expenses tend to lag behind any major currency devaluation. Not much will change in six months. Most contracts are for a year at fixed monthly payments.

wisehiney's picture

Consistently convert some profit into precious.

ET's picture

For sure.

I have way more in Precious Metals than I have in my checking account or in bonds.

It is my core position, but there is a need for cash, stocks and bonds, too.

Praetorian Guard's picture

Come now!!! They delivered my plastic shit within in 24 hours for $5 bucks!!! Hahahaha...





besnook's picture

a gold convertible yuan destroys the dollar. a destroyed dollar must increase interest rates(or become gold convertible) to keep interest in buying dollars and combat all the inflation an undesirable dollar will wrought. i love puns.

ET's picture

Most currencies are convertible to Gold. Can you get Gold with dollars? Yes. The price in dollars varies, though.

What will make the yuan different is if it is convertible to a fixed amount of Gold like a revival of the Bretton Woods scheme.

wisehiney's picture

China surely has a few problems of their own.

But in the end, right, all paper goes away.

Pernicious Gold Phallusy's picture

Why would China want to destroy a huge customer?

ET's picture

Federal Reserve showing inflation data in plain view.


"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Alan Greenspan

INTJ Economist's picture

You're quoting Greenspan as a joke, right?

Herdee's picture

Print harder, send everyone lots of cheques, refund their taxes from a lifetime of work, print more, do anything for hyperinflation.

wisehiney's picture

Just wait until you see what harvey and irma hath wrought.

brushhog's picture

Wow an entire article dedicated to a myth. Amazon, and in fact the entire online marketshare of retail, is about 8%. Its an urban legend, a collective dellusion like the Berenstein bears, Mandella's assassination, or the monopoly man's monocle. "Amazonisation" doesn not actually exist.

Fantasy Free Economics's picture

Statistitions and accountants never understand economics. Do not mistake federal reserve members for economists. Deflation works out to be an important part of the free markets system. At any given time, one class or another has an advantage. Deflation favors the working class and it doesn't last for ever.

When the productivity of labor increases as it has over the last 40 or so years, labor gets a productivity bonus unless it is denied them by an inflationary monetary policy.

James Quillian

Fantasy Free Economics

wisehiney's picture

The world's extreme debt burden (gov, corp, personal), and global demographics are the explanation.

Juggernaut x2's picture

1.7%? On what fucking planet?

wisehiney's picture

Commodities indices are 40+% below where they were 5 years ago.

Juggernaut x2's picture

Real estate taxes, healthcare, college tuition, new car prices, home prices, rent, etc

wisehiney's picture


The thing is......those prices would ALL collapse,

Just like 2000 and 2008,

Without support from you know who.

Rotten floor boards.

Take the escalator up.

And the skydive down.



besnook's picture

i thought cheap prices were good. i thought shippiing all american jobs to china was good. i thought globalization was good. now i am being told it is bad? i am confused. fucking dumbasses.

wisebastard's picture

the amazon symbol is a dick hidden in plain sight.....they are just letting you know they are fucking you from A to Z.....

lucyvp's picture

article is wrong.  disinflation has nothing to do with amazon.

Our trusted servants are just counting all the wrong things.

Oil not counted, housing obscured, medicine even though 20 something pct of gdp only accounts for 8 % of the cpi basket.  Other items are packed with new features that make the people who use hedonic reduction salivate yet same item lasts 5 years and its broken beyond repair.  Beef is too expensive so the BLS substitues chicken.  clothes made out of crap material, furniture made out of particle board.    property taxes to pay for services like education, police, fire through the roof do i have to go on ...  

GoldenDonuts's picture

No the inflation target can't be met because people don't have any money to run out and buy anything.  Oh and the powers that be who decide what to include in the inflation statistics don't include little things like food, fuel, or taxes.   Probably three of the four largest expenses in a typical person's budget.  But then again they only want 2% inflation not 8%.

J Mahoney's picture

Amazon is only indirectly to blame--our own stupid politicians that want inflation are the cause for no inflation--here's why:

No Inflation For the Fed , No Jobs For US and a lot of $$money$$ for Amazon (and Ebay)

We NEED TO IMMEDIATELY DO AWAY WITH a little known Asian subsidy (AKA Bezo Subsidy or BS) which is KILLING us folks but enriching the richest man in the world. Did you know a small package sent by an Asian online seller only cost them about $1.00 vs the $20.00 or more we would have to pay to send a small package to Asia. We even provide tracking services and Sunday USPS delivery on that freaking package. This was pushed down our throats thru the “heavy lobbying” by Ebay and Amazon.Without this Asian subsidy, brick and mortar stores would be competitive on THOUSANDS of items people buy on Amazon. Just the headlines about retail store closings tell us about jobs being lost and commercial real estate getting ready to tank, (Store closings---just a few—Penny’s 130-140 stores, Sears/Kmart 150, Macy’s 100, Foot Locker 100, Kohls 16, Office Depot 200, Abercrombie 114, BCBG 118, HH Gregg 88, Pier One 100).

Other Problems with this BS, Bezo Sudsidy is:

1) Post Office loosing hundreds of millions delivering these cheap packages (taxpayers left holding the bag making up for their losses and eventual USPS pension shortfalls)

2) Uninspected goods come in, many of which are in violation of intellectual property laws and safety regulations.

3) USA stores can’t compete- thus many previous full time jobs in retail have disappeared altogether or with lower paying and reduced benefit part-time jobs.

4) Foreign online sellers are NOT paying any sales tax, income tax, or tariffs like the importers in the USA.

5) Lost jobs equals social security taxes NOT COLLECTED--another freaking problem waiting to rear its ugly face.

6) With China getting ready to join Russia, Venezuala, Iran and others in selling goods NOT IN THE DOLLAR why do we not stop this NOW. Cut the tens of thousands of Chinese online sellers off from direct sales and make China sell containers only USING THE DOLLAR as payment.

 TRUMP—do away with only this one unfair "trade deal" asap if you want to get our economy moving again and you want to postpone the funeral for the dollar as reserve currency.

Pernicious Gold Phallusy's picture

Thanks for the explanation. I wanted a 4" USB cord to charge my phone. I couldn't find one in the US, only ones much longer for $20. I found a listing on eBay from China. 20 of the things for about $4, postage included. I bought them. They arrived from China with a stamp showing postage was ostensibly $6.50 - more than I paid for the 20 cables.

They were of shit quality, but I had 20 of them. I still have a few that work. I gave the pink ones to girls as gifts. That was a great idea.

Thugocracy's picture

Who mines ones and zeros? Who puts ones and zeros on a train to the refinery? Who trucks ones and zeros to the Distribution Center? Who moves the ones and zeros from the DC to the plant that makes apps? Seems hugely counter to the velocity of money, compared to manufacturing.

TheSilentMajority's picture

"Inflation deniers".

It's s a term that I coined to describe those who want us to believe that the real CPI has been anything less than 7%-13% annualized over the last 20+ years.

It is an inconvenient truth that the price of housing+education+healthcare, or the majority of most peoples expenses, has tripled or more over the last 20+ years.

The FED is fraudulently trying to convince the sheep that inlfation is below 2%!

Blue Steel 309's picture

Between Wal-Mart and Amazon you may have the beginnings of a conspiracy theory to manipulate CPI in a difficult to see (or believe) strategy. Oligopolies and government collusion are the rule.

Batman11's picture

It's not even hard.

A picture paints a thousand words, let’s look at a US wealth distribution graphic: shot 2015-06-15 at 11.28.56 am.png

Wealth has concentrated too much to maintain demand.

Demand was maintained with debt.

Sub-prime mortgages maxed. out

Sub-prime auto loans maxed. out

Payday loans maxed. out 


J J Pettigrew's picture

Where does the Fed get the authority to promote a 2% inflation target?  The mandates under which they are allowed to operate

dictate that they promote STABLE PRICES.

The CPI is a very poor measuring device.  Health Insurance is weighted the same as magazines and firewood.  I dont know about you, but health insurance is every month a big chunk of money out of pocket, and I dont buy magazines or firewood.

overmedicatedundersexed's picture

when credit card rates are below 1% then tell me about no inflation..otherwise fuck off