The buzz the past several days has been in the dissection of Amazon’s purchase of Whole Foods. If you listen to Wall Street gurus, you would think Amazon will drive every grocer and retailer out of business, and inflation will drop to 0%.
There is no doubt Amazon will impact the grocery industry, but it’s not going away. Not every household in the United States has an Amazon Prime membership, and some people actually enjoy going to the grocery store and squeezing the tomatoes.
The grocery industry will certainly change. It will likely have fewer but larger stores and beefed-up delivery capabilities. Remember, Amazon did not kill Walmart, but it did force Walmart to adapt and Walmart did successfully.
As far as the inflationary impact of Amazon, the theory Amazon will single-handedly kill any inflation is preposterous. Grocery prices are largely based on the prices of food commodities. Last time I checked, Amazon had not yet taken control of the weather.To the extent that Amazon can bring down the price of groceries, this would be favorable for the consumer.
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Just as the fall in crude oil and gasoline prices leaves more for the consumer to spend elsewhere, so, too, does the fall in food prices. This can be to the benefit in sales of other consumer goods and services, especially. According to the Bureau ofLabor Statistics, U.S. households spend approximately 7.8% of disposable income on in-home food consumption. That leaves quite a bit of money unaffected by food prices, and the less spent on food at home the more to spend on everything else.
The Amazon story of its entry into groceries will play out over years, not months. It’s also possible Amazon could fail. It’s happened before. The one thing we know for certain is that Amazon’s purchase of Whole Foods is not a game-changerfor inflation or Fed policy. Don’t believe the hype.
Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.