Online inflation as measured by the MIT Billion Prices Project/PriceStats, which tracks prices in real time on a daily basis on websites such as Amazon.com, has continued to fall throughout the month of May, even going slightly negative (implying some deflation). How can such disinflation be possible, given that the Federal Reserve has expanded its balance sheet by trillions of dollars over just the past few weeks, and that the coronavirus has distorted global supply chains, causing shortages?

Inflation is one of the great question marks of the coronavirus era. For the technicians of inflation, there’s a more immediate challenge: how to measure it properly. The problem, according to Alberto Cavallo is that “the basket for a typical consumer during lockdown is very different.”

Since 1972 Americans have sat through more than 9,000 episodes of “The Price is Right”, a game show with an economic twist. After being summoned from the audience by the famous catchphrase—“come on down”—contestants must guess the exact price of prizes, ranging from guitars to garden furniture. Contestants have got a lot worse at guessing prices. Why?

American retailers have yet to pass along higher prices caused by Chinese tariffs, but shrinking product demand caused by the coronavirus could change that, warns Alberto Cavallo.

Since 2018, the U.S. has imposed import tariffs ranging from 10 to 50 percent on goods from China. Using data collected at the border and at retailers, Alberto Cavallo of Harvard University and coauthors estimate that, on average, foreign exporters have passed 92% of the cost of the tariffs on to U.S businesses in the form of higher prices.

A May 2019 study by economists from Harvard University, the University of Chicago and the Federal Reserve Bank of Boston on the impact of tariffs on the U.S. economy found that the cost of tariffs “has fallen largely on the U.S.”

President Trump’s trade truce with China may have temporarily cooled tensions between the world’s two largest economies. Anew paper by researchers at Harvard University, the University of Chicago and the Federal Reserve Bank of Boston suggests that businesses and consumers in the United States are feeling an impact from the trade fight and that the pain could escalate.

Amazon is used to fielding accusations: that it has killed off physical retail business, that it mistreats warehouse workers, that it abuses its dominant platform in online sales. So perhaps it is not a surprise that some people also blame it for low inflation. In 2017 Janet Yellen, then chair of the Federal Reserve, wondered aloud if cut-throat online competition might be stopping goods-producers raising prices even in a world of rising demand. Alberto Cavallo of Harvard Business School has found that Amazon’s prices are 6% lower than those of eight large retailers, and 5% lower than on those retailers’ websites.

Donald Trump has threatened to impose a sweeping new round of trade tariffs against imports from China. According to analysis by Reuters, it would mean 92% of hardware sold by Apple would face levies.
If the tariffs are indeed imposed in December, it could mean several outcomes – none of which Apple will be particularly keen on, explained Alberto Cavallo, an associate professor at Harvard Business School.