Digital Retail Price Index ? Centre for Economics and Business ...

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A comparator of online and in-store retail price inflation

Introduction

The Centre for Economics and Business Research (Cebr) was commissioned by TalkTalk to undertake a study quantifying the levels of price inflation observed in both online and in-store retail channels. The study adopts a top-down approach, using macroeconomic retail trade data from the Office for National Statistics (ONS) , overseas trade data from HM Revenue & Customs (HMRC) and inflation data from the UK?s main import markets.

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Our Findings

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• The Digital Retail Price Index (DRPI) shows online prices growing by around 2.2% between Q1 2007 and Q1 2012, averaging an annual rate of 0.4%.

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• In contrast the In-store Price Comparator Index shows in-store prices rising by around 6.4% over the same period, averaging 1.2% annually.

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• Based on this evidence, this suggests that a consumer faces a rate of inflation that is three times higher if they replicated their online spending habits in-store.

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• UK-based internet retailers are the main drivers of lower DRPI inflation in the last two years. This is in contrast with Internationally-based internet retailers and in-store retailers who have both seen retail prices rise faster. For the former, this is in part due to a weaker Sterling. For the latter, increased inflationary pressures on fixed overheads may have contributed to faster retail price growth in-store.

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• The latest data shows annual DRPI inflation at 0.3% in Q1 2012, whilst the In-store Price Comparator Index registered annual inflation of 2.5%.

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• We expect the DRPI to be lower than the In-store Price Comparator Index over the next twelve months as energy prices still remain elevated ? disproportionately affecting high-street businesses with relatively higher overhead costs. Furthermore, Internationally-based internet retailers are expected to benefit from lower air freight costs whilst consumer goods prices in global markets are expected to remain broadly stable.

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