How Does Ecommerce Impact Inflation?

Ever since I was young, I have always been fascinated by reading. Whether it was fiction, non-fiction, biography, or any other genre, reading formed a haven that continues to enrich my knowledge to this day. My parents had always encouraged my sister and I to read and discuss what we learn. As we grew older, so did the number of books in our library.

We even had to place books in the kitchen’s cupboard, as we ran out of space. Given the situation, we started thinking of alternatives for reading more books while using less space. We figured out a temporary solution and donated books to a local charity; however, we faced the same dilemma, as we kept on purchasing books.

So, one evening and while surfing the internet using my iPad, I came across the iBook app which contained hundreds of books. Although it mostly featured classic titles, I wanted to discover the variety of books it contained. Since then, my reading activity has entirely moved to my iPad.

Now, you must be wondering how switching from old-school reading methods to electronic reading, influences inflation?

Fifteen years ago, if you wanted to get a book, you had to drive your car or ride a bus to your nearest bookstore. This involved a series of actions that contributed, directly and indirectly, to the local economic activity of your entourage. Once aggregated, these series of actions contributed to the entire economic activity of your country.

Riding a car consumed fuel/gas and depreciated your car’s value, as you used it more; this also applies to a bus ride. The energy you spent to buy the book might be replenished at your favorite restaurant or café. Not to forget the parking fee! Compare this to electronic reading, where you can purchase a book only by clicking a few buttons. Only at that moment do you realize that all the hassle you had to go through could be avoided by owning a tablet, having internet access, and paying with your debit/credit card. It turns out that purchasing a book this way is cheaper, saves time, effort, and energy.

It’s not only about buying a book, it could be about buying your favorite sneakers, streaming the most anticipated TV shows and movies, watching live sport and entertainment events, and what have you, while you are sitting on your couch. In other words, it’s about ecommerce!

Lately, major brick-and-mortar retailers, who once dominated the market, are vanishing; the latest victim being the iconic toys retailer “Toys-R-Us”, that had filed for bankruptcy not too long ago.  Not to mention, the long streak of similar retailers who did not adapt to the online revolution that promotes online sale activity. They have witnessed the meteoric rise of Amazon and Alibaba as go-to online destinations, paving the way for an all-new shopping experience and disrupting traditional shopping activities.

Small changes, such as shifting our reading to electronic devices and shopping online, could alter the path of old processes, reduce costs, and eliminate previous habits. Subsequently, we would witness significant effects on the monetary policy set by central bank, in addition to traditional economic factors that mainstream economists focus on.

If reading a book using a tablet might have this effect, imagine what would happen to the price of oil once electric cars and supersonic hyper-loops fill our planet? How would inflation be affected if central banks focus more on incorporating this technology into their main monetary policy objective?

About the author

Mohammad Al Jamal

In love with the financial markets since he was a 16-year-old, Mohammad has grown up being fascinated by stocks, bonds, commodities and foreign exchange. Mohammad currently works as a FX Dealer at Amana Capital Group; he holds a Master’s Degree in Finance from the American University of Beirut, and enjoys reading, socializing and working out.

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