Alibaba Research Institute: Changes in online shopping prices in May 2016

On June 8, 2016, Alibaba Research Institute released the Online Shopping Core Product Price Index (aSPI-core) and Alibaba Online Shopping Price Index (aSPI) for May 2016.

Online shopping commodity price level (aSPI-core): down 0.05% month-on-month

In May 2016, aSPI-core (online shopping fixed basket price index), which measures the price level of mainstream online shopping goods , fell by 0.05% month-on-month, which means that the price level of mainstream online shopping goods fell slightly compared with the previous month. This month, aSPI-core fell by 0.97% year-on-year, narrowing the decline by 0.24 percentage points from the previous period.

Judging from the contribution rate of each major category of goods to the core commodity price index (aSPI-core), the price increase of entertainment, education, cultural products and service products is the main reason for the month-on-month decline in aSPI-core. (Figure 1)

Figure 1 aSPI-core Alibaba online shopping core commodity price index (%)

Category comparison (aSPI-core): Food category has the largest increase

From the perspective of price levels, among the ten major categories of core commodity price index aSPI-core (online shopping fixed basket price index), prices of three categories of commodities rose, of which the largest increase was in food, which rose by 2.26% month-on-month this month. The increase in the price of food for eating out was the main reason for the increase in food prices; the prices of the other seven categories of commodities fell, and the largest decrease was in entertainment, education, cultural products and services, which fell by 0.59%. (Figure 2)

Figure 2 aSPI-core Alibaba online shopping core commodity price index category month-on-month change (%)

Category year-on-year (aSPI-core): Food category still has the largest increase

From the perspective of price levels, among the ten major categories of core commodity price index aSPI-core (online shopping fixed basket price index), six categories of commodities have increased compared with the same period in 2015, among which the largest increase is still in food, with prices increasing by 6.63% year-on-year; the prices of the remaining four categories of commodities have decreased year-on-year, and the largest decrease is still in transportation and communications, with prices decreasing by 11.58% year-on-year, and a cumulative decrease of 2.95% in 2016. (Figure 3)

Figure 3 aSPI-core Alibaba online shopping core commodity price index category year-on-year change (%)

Average price change of all network expenditure (aSPI): down 0.16% month-on-month

The aSPI, which measures the average price change of the entire network expenditure, has a slower month-on-month growth rate this month, with the average price of the entire network expenditure decreasing by 0.16% month-on-month; the average price of the entire network expenditure narrowed by 0.72 percentage points from the previous month, and increased by 6.24% year-on-year. (Figure 4)

Figure 4 aSPI Alibaba Online Shopping Price Index (%)

Category-by-category comparison (aSPI): Food category increased by 2.60%, the largest increase

From the perspective of average expenditure prices, among the ten major categories of the aSPI, the average expenditure prices of seven categories of goods increased, of which the largest increase was in food, up 2.60% month-on-month; the average expenditure prices of the remaining three categories of goods decreased, of which the largest decrease was in transportation and communications, down 1.91% month-on-month. (Figure 5)

Figure 5 aSPI Alibaba price index category month-on-month change (%)

Classification year-on-year (aSPI): Residential category has the largest increase

From the perspective of average expenditure prices, among the ten major categories of the aSPI, the average expenditure prices of nine categories of goods generally increased compared with the same period in 2015, among which the housing category had the largest increase, up 17.07% year-on-year; only the average price of clothing goods decreased, down 4.51% year-on-year. (Figure 6)

Figure 6 aSPI Alibaba price index category year-on-year change (%)

Note: In order to timely reflect the development and changes in the basic category composition of Alibaba's online retail platform, the basic category selection and weights used in the calculation of the aSPI-core index were updated in January 2016 to the classification weights of transactions throughout 2015. It has been calculated that the index fluctuation caused by the weight replacement is approximately 0.05 percentage points.

Classification of aSPI online shopping price series index

The commodities traded on Alibaba's online retail platform are extremely diverse and highly segmented. At the same time, due to the characteristics of online commodity trading in the new technology environment that are different from the traditional retail environment, the commodity composition has distinct characteristics and the commodities are frequently updated.

In order to establish a credible price index using big data, all the traded commodities covered by the aSPI online shopping price series index were remapped to the aSPI four-level classification structure based on Taobao's nine-level classification structure, with reference to the commodity classification structure of the retail price survey and the consumer price survey.

According to this architecture, the most detailed leaf categories of Taobao categories that cannot be divided any further correspond to the "basic categories" of the fixed basket price index. Different commodities in this category are highly substitutable, while different categories are less substitutable. At the same time, the SKU (stock keeping unit) at the commodity level corresponds to "specification products", that is, different commodity items with the same SKU correspond to the same commodity defined by multiple attributes and specifications. For consumers, there is no difference in usage utility.

At present, Alibaba online shopping price index series includes two groups of indexes (Figure 7). One group is the Alibaba online shopping (whole network) price index (aSPI) combined with the life consumption theory, which is used to reflect the changes in the average price level of expenditures on the Alibaba online shopping platform. The other group is the Alibaba online shopping core commodity price index (aSPI-core) based on the fixed basket theory, which is used to reflect the general price level changes of mainstream online shopping commodities.

Both indexes are composed of ten major classification indexes, namely food, tobacco, alcohol and supplies, clothing, household equipment and maintenance services, medical care and personal supplies, transportation and communications, entertainment, education and cultural supplies and services, housing, office supplies and services, and hobbies, collections and investments. The ten major classification indexes also include nearly 500 basic classification price indices.

Figure 7 aSPI and aSPI-core

Introduction to aSPI-core Index

aSPI-core (alibaba Shopping Price Index-core) is a fixed basket price index. Through an innovative screening algorithm, it identifies nearly 100,000 core commodities under nearly 500 basic categories on the Alibaba retail platform as a fixed "basket". It tracks the actual online shopping transaction price changes of the representative "broad fixed basket" of commodities and services in the current month every month to depict the general price level fluctuations of mainstream online shopping commodities and services, thereby reflecting the macro price trend from the online retail channel.

Introduction to aSPI Index

Alibaba's online shopping price index (aSPI) is based on the monthly weighted average transaction price changes of leaf categories. It is a price index calculated with the transaction share of the previous month as the weight to reflect the changes in the price level of overall online shopping expenditures. It also includes information on general price changes at the commodity level and changes in consumer consumption structure under leaf categories.

Comparison of aSPI and aSPI-core indices

Alibaba's core commodity price index (aSPI-core) is based on strictly comparable transaction prices of standard products. It has a small data error and is highly consistent with the commonly used macroeconomic price index in basic methodology. Therefore, it is also relatively intuitive and easy to understand.

However, due to the accelerated frequency of product replacement in modern society, the sales and prices of many products have life cycle characteristics, that is, when they are first launched, there are few similar products and few alternative choices, so the products can enjoy a relatively high premium. As time goes by, more and more alternative products and technologically updated products participate in market competition, and this premium will become lower and lower. This characteristic brought about by technological progress and market competition will bring about a natural trend of falling prices, so that the fixed basket index may underestimate the rising trend of consumer expenditure costs in the long run. This problem may be more obvious due to the faster emergence and dissemination of new products in online retail.

The Alibaba Online Shopping Price Index (aSPI), which is based on the cost of living theory, can theoretically overcome this limitation faced by the fixed basket index. This price index measures the change in the minimum expenditure level caused by the substitution effect on the quantity of consumption caused by the change in the relative price of products under the condition that the consumer's utility remains unchanged. If Taobao's finest leaf categories are regarded as a collection of goods with a high degree of substitution between each other, then the monthly change in the weighted average transaction price of the leaf categories approximately reflects the alternative expenditure choices made by online shoppers under the condition of price changes of various products in the leaf categories. At the same time, changes in quality choices caused by changes in income and income expectations are also included.

Since aSPI includes information about changes in the consumption structure of online shoppers under leaf categories in addition to general price changes, by excluding the information about general price changes of goods reflected by aSPI-core in aSPI, we can obtain information about changes in consumption structure. This structural change measures consumers' relative choice of high-priced goods and low-priced goods under the same basic category. This choice is driven by the relative price changes of high-priced goods and low-priced goods, seasonal factors, and changes in the income structure of online shoppers.