Howard Schneider, Lindsay (NYSE) Dunsmuir

(Reuters) – Online goods prices continued their record-breaking growth in March, according to data from Adobe (NASDAQ.) Inc. This adds a troubling dimension to Federal Reserve’s efforts to reduce price rises.

Adobe’s digital prices index rose by 3.6% compared to a previous year, same as February. Prices for apparel, long subject to heavy discounting online, increased 16.3% versus a prior year and online grocery prices increased 9%.

Adobe published a digital price index every month last year. It tracked tens and millions of online products in 18 similar categories to the Consumer Price Index which will be out Tuesday morning.

Similar to the CPI it has seen a change during the pandemic toward greater inflation, with no signs yet of a slowdown. This is in the case of an online platform, which for years has provided both price relief and competition for brick-and mortar retailers.

According to the Fed, this shift in the online price dynamics may be another evidence that factors that drive U.S. or global inflation might have changed significantly, or at the very least, that they will not quickly revert to the milder inflation experienced before the pandemic.

Prices have risen over the past thirty years due to globalization, demographics, and technological change. Joe Brusuelas (RSM chief economist) said the Fed is unable to do anything about any of these. “We are going through a period that is prolonged disruption.” This could result in structurally higher inflation, as people age, save less, and reduce their assets. In addition, globalization may suffer from a string of shocks such as the Trump trade war and pandemic.

Although technology offers potential relief via higher productivity and increased efficiency, the Adobe Index showed that, for now, key consumer goods are not affected by this trend.

CPI data from March is likely to reveal prices rising by 8.4% over a previous year, the largest increase since 1982. That figure supports arguments that the Fed has not been quick to respond.

“MORE PERSISTENT”

In March the Fed increased the target federal funds rates by quarter of a point. This was the first in a planned series of increases for this year.

These future hikes will likely be at half-point increments and the central banks is likely to begin trimming its portfolio soon, which could further increase consumer borrowing costs.

The gap between inflation today and Fed Rate is still among the biggest ever recorded. This is a result of Fed’s unwillingness last year to increase rates when inflation started.

This hesitancy stemmed from the belief that inflation was caused by temporary disruptions and would cause inflation to act as before it had been pinned at 2%.

Charles Evans, Chicago Fed President on Monday said that it would take some time to understand the sudden burst in relative prices. He also spoke about how much longer they will be with us. “They are much more persistent that initially anticipated, but (but) they don’t seem to be going away.”

This issue will be central in shaping the Fed’s policy this year. The Fed will do less if inflation eases as the pandemic or other shocks subside. If not, more work falls to monetary policies. This will increase the chance of recession as more aggressive Fed policy.

Michael Kiley was the deputy director of Fed’s Division of Financial Stability. He examined the evidence that inflation was “anchored” at 2 percent between 2000-1999. This may have been due to structural issues that can again dominate, or just because of persistent inflation. It also showed that it tended to remain the same in the future, absent any shocks.

The conclusion of his research: Both.

Inflation is not persistent according to data from 2000-2019.

Politicans have begun to look at the causes of an endemically high inflation phase. These include tight labor markets with the resultant higher wage pressure and the reordering global supply chains to ensure future disruptions are prevented by investing in more local areas or locking down multiple sources.

On Monday, an executive from the trucking sector described how pricing had been disrupted by the pandemic and what it would take to fix this, at least for now, during a Fed conference.

Crissy Wieck is chief sales officer of Western Express. She stated that after increasing driver salaries by 40%, there has been a more then 80% increase in trailer prices from $28,500 up to $52,000. This constrains efforts to expand its capacities.

At a Fed Listens community session in Nashville, she stated that “your company can’t operate without raising the costs of what we do every single day.” “There hasn’t been an infusion of 200, 300, 400,000 extra trucks to take the pressure off. … We won’t have new trucks until 2024. This means that the supply chain isn’t going to be correct and neither is the supply demand ratio.