(Bloomberg Opinion) -- In recent years, the so-called “Amazon effect” has been used to explain low inflation in developed economies: Prices are supposedly lower – and more transparent – online, forcing offline retailers to reduce prices. The effect, however, can go both ways – the influence of e-commerce makes prices fluctuate more often, reacting immediately to shocks like energy price and exchange rate jumps.

The “Amazon effect” is such a buzzword that Federal Reserve Chairman Jerome Powell and Bank of Japan governor Haruhiko Kuroda mentioned it earlier this year as one of the reasons for slow price growth. Research conducted in Europe also appears to show that e-commerce growth pushes inflation down.

Evidence presented by Austan Goolsbee of the University of Chicago and Peter Klenow of Stanford University in a 2018 paper shows that inflation is systematically lower online than offline: In 2014 through 2017, the Adobe Digital Price Index (DPI), calculated from millions of online prices, was an average of 3 percentage points lower than the official consumer price index calculated by the U.S. Bureau of Labor Statistics. This doesn’t just confirm the existence of downward price pressure from the internet but implies that once e-commerce is properly integrated into official statistics – something the U.K. Office of National Statistics, for example, announced earlier this year it would do – inflation will likely turn out to be lower than currently reported.

The “Amazon effect” is not necessarily one-directional, though. Adobe’s Digital Dollar Report for the second quarter of 2018, the latest one published so far, shows that the DPI can at times be higher than official inflation. Online prices increased 0.6 percent year-on-year in June across the product categories tracked by Adobe and official inflation in the same categories was negative at -0.1 percent.

Online prices can grow faster than offline ones because online retailers change them more often, reacting to changes in various price inputs. In a 2017 paper, Yury Gorodnichenko of the University of California, Berkeley, and collaborators showed that online, the “life span” of a posted price is up to 50 percent shorter than in a brick-and-mortar store, and that of a regular price can be only one-third as long. One reason for this is online retailers’ desire and ability to pass on exchange rate fluctuations to consumers.

In a recent paper, Alberto Cavallo of Harvard University, who has written extensively about online prices, shows that this behavior by e-commerce companies is affecting brick-and-mortar retailers, many of whom sell online, too. The internet-based competition erases geographic differences in prices (which can be a problem in poorer areas) and prompts retailers to change price stickers faster.

“Retail prices are becoming less ‘insulated’ from nationwide shocks,” Cavallo wrote. “Fuel prices, exchange-rate fluctuations, or any other shock that may enter the pricing algorithms used by large retailers are more likely to have a larger impact on retail prices that in the past.” 

This is an “Amazon effect” not likely to make consumers happy, especially in these times of trade wars, rising tariffs, volatile currencies and rising oil prices. The retail industry’s adaptation to online practices isn’t just an illustration of the beneficial effects of competition on consumers: It exposes them to forces in the globalized economy over which they have no control.

Even if online retail giants such an Amazon never acquire monopoly pricing power, they can already help speed up inflation, especially in import-dependent economies. Even now, the various “Amazon effects” don’t necessarily net out in the public’s favor.

To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story: Therese Raphael at traphael4@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

©2018 Bloomberg L.P.