Behold, Google’s view on inflation | FT Alphaville

Behold, Google’s view on inflation

It was bound to happen.

According to the FT, Google is mid-way through the process of creating its very own consumer price index — based (understandably) on its ability to access real-time price data from across the web. So logical.

As the FT reports:

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.

But while it might seem an obvious route to travel for Google,  the idea only struck the company’s chief economist Hal Varian (yes he really is called Hal) when he delved online to try and replace a broken pepper grinder.

As the paper notes:

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.

Google’s index will focus on a slightly different basket of consumer goods than the  more traditional CPI indices, simply due to the type of goods traded online.

For example, in the US, housing accounts for about 40 per cent of the CPI, but in Google’s index housing will only account for 18 per cent. And while the so-called ‘GPI’ shows a pretty good correlation with the CPI for goods such as cameras and watches, it is less correlated with prices for such things as car parts, which are traded less frequently online, says the FT.

Google is still deciding whether to go live with the product. However, the FT does provide some initial findings from the data series to give prospective index-watchers a flavour of the developments it’s tracking.

In the US, for example, the index has been registering a “very clear deflationary trend” for web-traded goods since about last Christmas. In the UK, though, the index has been showing a “slight inflationary trend”.

Whatever the inflationary or deflationary outcome, however — what a Google price index definitely illustrates is the awesome (and growing) power of the internet search and analytics company.

Now for a Google cyber money supply index…

Related links:
Not another freaking economic indicator
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US manufacturing: now what?
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Google to map inflation using web data
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