Australia’s inflation crisis would have been worse if it wasn’t for lower priced products and increased competition from online retail channels, according to new research by Mandala Partners.

The new report, Surf, Shop, Save: Online retail helps lower the cost of living, analysed the impact of online retail channels on inflation, by comparing the prices of more than 60,000 products sold on online channels with the Consumer Price Index.

To estimate the cost-efficiency effect, the report analysed a sample of over 60,000 distinct products from online channels, creating a time series of prices from 2019 to 2023. Using this data, an ‘Online Channels Index’ (OCI) was constructed and each category of the OCI (e.g., clothing and footwear) was compared to the corresponding sub-group of the ABS’ Consumer Price Index (CPI).

The research finds that, without the cost-efficiency and competitive effects of online retail channels, annual inflation would have been 0.7 percentage points higher at its peak in 2022.

While all Australians have experienced cost savings from online channels, lower-income households have disproportionately benefited from the presence of online channels.

The report, commissioned by Amazon Australia, found savings from reduced handling and improved distribution not only lowered prices for online products, but reduced prices across the broader retail sector due to increased competition and consumer choice.

While inflation rose, prices for online goods fell between 2019 and 2023. By December 2023, the difference between the change in online prices and CPI was 10.5 percentage points, meaning the average Australian household saved almost $3,500 – equivalent of receiving three weeks’ free groceries each year since 2019.

Report author and Mandala partner Adam Triggs said it was clear online shopping had eased the cost-of-living burden on Australians.

“This research indicates online retail may be the unrecognised hero of the inflation crisis,” Dr Triggs said.

“Australia faced a perfect storm with supply chain challenges, the war in Ukraine and disruptions to global trade. But inflation would have been worse without online sales, which helped drive down prices directly and create competition to ease pressure on offline sales.

“Retail is a mix of online and offline channels, and retailers are increasingly blending them to reach consumers. As part of that mix, online channels are having a powerful competitive impact, helping consumers more easily shop around for the best price.

“Without online retail channels, the Reserve Bank would have hiked interest rates by an extra 0.5 percentage points, and today’s cash rate would be 4.85 per cent.

“These savings make a real difference to Australians trying to manage household budgets.”

The Surf, Shop, Save report is being launched on Thursday, 29 February by Labor MP and economist Dr Andew Charlton at a cost-of-living seminar at Parliament House in Canberra.