By Robin Harding in Denver
Published: October 11 2010 22:31 | Last updated: October 11 2010 22:31
Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics.
The work by Google’s chief economist, Hal Varian, highlights how economic data can be gathered far more rapidly using online sources. The official Consumer Price Index data are collected by hand from shops, and only published monthly with a time lag of several weeks.
At the National Association of Business Economists conference in Denver, Colorado, Mr Varian said that the GPI was a work in progress and Google had not yet decided whether to publish it.
While the Federal Reserve is unlikely to panic just yet, Mr Varian said that the GPI shows a “very clear deflationary trend” for web-traded goods in the US since Christmas. Although the data are not seasonally adjusted, Mr Varian said that prices rose during the same period a year ago. The ‘core’ CPI in the US, which excludes food and energy, rose 0.9 per cent on a year ago in August.
“It’s a quite different picture if you go to the UK where you see a slight inflationary trend,” Mr Varian said. He attributed the rise in the UK GPI to the weakness of sterling.
Mr Varian emphasised that the GPI is not a direct replacement for the CPI because the mix of goods that are sold on the web is different to the mix in the wider economy. Housing accounts for about 40 per cent of the US CPI, for example, but only 18 per cent of the GPI.
The GPI shows a “pretty good correlation” with the CPI for goods such as cameras and watches that are often sold on the web, but less so for others, such as car parts, that are infrequently traded online.
Mr Varian said that the GPI had been inspired by a personal shopping experience: “A tragedy struck our house a few months ago because my favourite pepper grinder broke.”
On typing ‘pepper grinder’ into Google Shopping, Mr Varian was struck by the list of prices. “What’s the first thing you want to do if you’re an economist? You want to construct a price index,” Mr Varian said.
Mr Varian also discussed some of his other work on using Google’s search data for economic forecasting. He said that he is working on “predicting the present” by using real-time search data to forecast official data that are only released with time lags.
For example, searches for “unemployment insurance” may be a good tool to predict actual claims for unemployment insurance, or the unemployment rate.
Mr Varian said that Wall Street analysts are still more accurate, because they can take account of changes such as lay-offs of census workers, but Google search data may help to improve the accuracy of their forecasts.
http://www.ft.com/cms/s/2/deeb985e-d55f-11df-8e86-00144feabdc0.html
Do you guys see this competing with the CPI?
Scrooge McDuck:Do you guys see this competing with the CPI?
Only if Google releases all of the data to back it up.
It does not matter if it is better than the CPI or not. Both are measurements of the effects of inflation and not inflation. Try using the growth in excess banking reserves or the growth in the Federal Reserve Balance Sheet to determine real inflation both available on this web site or at the St Louis Federal Reserve Bank website.
Measuring inflation using a basket, even a big basket, of goods is like driving a race car with the windshield partially blocked.
This will rule so hard. Do you guys wonder if google is secretly anti establishment?
Sieben:This will rule so hard. Do you guys wonder if google is secretly anti establishment?
If Google was genuinely anti-establishment, it would have been crushed by the government already. That's my gut feeling anyway.
@OP, I cleaned up the post so it was more readable. Hope you don't mind.
Google probably has like a 99.99% approval rating from people. I don't think the government can touch them. Free markets are a public good, but Google is invested in practically every single person (approximately equally), so for them, free markets would be a private good (if they believed in free markets). Its improbable but plausible that they might try to provide public goods....
Not really. After all, Google seems to have an all-too-cozy relationship with the intelligence community.
In fact, a Google Price Index would help the establishment just as well as the non-establishment.
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
Hmm... I'm still not sure. If google really just automates it and doesn't change it year over year, it would at least be a consistent measure of price inflation. It just depends how they do it. Obviously there is some reason for google developing a GPI. The CPI doesn't address everything. The ostensible reason is the seperation between "real" and "virtual" economies... which means that if we become digital enough, the CPI could become this measure of the primitive economy, while the GPI is the real economy...
Aggregates and $2 will get you a cup of joe at any diner.
That said, this could be looked at as the knowledge economy. As the price of knowledge deflates, we become wealthier.