Do We Need Google To Measure Inflation?

inflation

Slate – Economists are creating new methods for tracking prices.

…Just because the government expends so much energy determining the rate of inflation does not mean it is tallying it in the smartest or most accurate way. The reigning methodology is, well, clunky. It costs Washington around $234 million a year to get all those people to go and bear witness to a $1.57 price increase in a packet of tube socks and then to massage those individual data points down to one number. Moreover, there is a weekslong lag between the checkers tallying up the numbers and the government announcing the changes: The inflation measure comes out only 12 times a year, though prices change, sometimes dramatically, all the time. Plus, the methodology is archaic, given that we live in the Internet age. Prices are easily available online and a lot of shopping happens on the Web rather than in stores.

But there might be a better way. In the last few months, economists have come up with new methods for calculating inflation at Internet speed—nimbler, cheaper, faster, and perhaps even more accurate than Washington’s…

7 Responses to Do We Need Google To Measure Inflation?

  • Blackadder says:

    Google’s price index (the “GPI”) isn’t being published yet, but according to Google’s chief economist “the GPI shows a ‘very clear deflationary trend’ for web-traded goods in the US since Christmas.” And as the article mentions, MIT’s Billion Prices Project has tracked the CPI fairly closely, and is not showing high levels of inflation.

    Prediction: inflation hawks who claim not to trust the CPI because it is put out by the government will not be convinced that there is not high inflation by these non-governmental indexes.

  • T. Shaw says:

    THERE IS not lowdown (cringe: get the pun?) deflation, either. It’s bad kharma! (economist jokes)

    THERE IS disappointing discretionary spending. Remorseless household deleveraging: paying or defaulting debts, not spending; food and fuel prices increasing; negative wealth effect of declining home prices; (real) unemployment is at 17%; double-dip recession paranoia.

    YEP! No inflation. How could there be? Carter isn’t president and it’s not 1980. I checked.

    There is no deflation: housing prices are dropping (disinflation from FNM/FRE/Fed induced unprecedented bubble) because of over-supply plus pricing pressure from additional 2,000,000 foreclosures and short sales.

    Stock markets capped by sluggish job growth; limited wage gains; concerns about slowing economy. But, buoyed by (evil) corporate earnings (profits advanced more than stock prices, poised to keep growing); low interest rates and heavy gov spending- riskiest assets posting highest gains – asset misallocation, distorted price signals . . .

    Effects of huge liquidity: keep 10 Year T rates flat.

    Fed keep pumping! Goldman Sachs loves it. I read that in Barrons.

    Meanwhile, farm land prices rising at double-digit clip. Farm prices upper Midwest jumped 10% since 2009. The year-over-year increases were even more dramatic in some states — 13% in Iowa, 11% in Indiana. Irrigated cropland is up 11.8% in Nebraska and 12.2% in Kansas. The increases are fueled by? Naaa . . . Couldn’t be rising commodities prices . . .

    Pray for inflation.

  • doug says:

    Nope, no inflation. The inexpensive cut of meat that was $1.24 last year, and $1.40 last week was $1.60 today when I shopped for groceries, but that’s not inflation. Sugar was $15 for a fifty pound bag last year, and over $29 today, but there’s no inflation. A fifty pound bag of flour was $8 last year, and $13 this year. Apples were $0.48, and are now $0.88 cents a pound. Milk was $1.50, and now goes for $2.00 per gallon. But hey, when the government declares a lesser increase in government spending to be a spending cut, it’s no wonder anything less than a Zimbabwe type collapse to be deflation. People are out of work, or fearful they will be, and they are spending a higher percentage of their income on food and energy, so naturally demand for other goods will decrease. The Fed DOUBLED the money supply in December, 2008. But as long as we aren’t pushing a wheelbarrow of deutchmarks to the bakery to buy a single loaf of bread, the government can rein in Social Security spending by declaring there to be no inflation, and making the annual adjustments accordingly.

  • Blackadder says:

    Doug,

    All of the items you mention are included in the Billion Prices Project and Google Price Indexes, both of which do not show high inflation. These are comprehensive indexes, meaning that they include all prices instead of cherry picking a couple. The indexes are also not put together by the government.

    I would also note that while the prices of things like milk and sugar may be up significantly from 2009, they are not up significantly from 2008.

  • doug says:

    Blackadder, I think that there is plenty of room to debate what constitutes inflation. I acknowledge that the CPI might show a particular number, but is it a number that is useful for everyone? I haven’t found it useful in managing my household for the reasons I have mentioned. While a person running a factory may note in planning for next quarter that prices are down for washing machines, and another may note that a nice suit can be had for less money than in previous years, and collectively business and industry may note that prices for a large variety of goods are down, this is only a partial measure of how that affects consumers.

    A wealthy consumer may find that their favorite high end salad dressing hasn’t increased in price, and breakfast cereal hasn’t gone up, but these are items with a high level of profit built into their price. A poor consumer will have an entirely different experience, and will find that those items which are lowest in price and require home preparation to add the value otherwise added in a factory have gone up substantially and continue to do so. One can hold off on purchasing a new washing machine and make the old one last, or buy a used one. If necessary, clothing can be washed by hand in the sink. I did this myself as a college student. But one must still eat. And it is not necessary to consume salad dress or breakfast cereal, but one must eat something. Housing may be down, but farmland prices are up, and energy is up. One can always ride a bike, but in our society it is socially unacceptable to expect to take a family bike ride of extended duration in inclement weather for basic transportation, and so energy has become as much a necessity as food. You can turn the heat down, but you can’t turn the heat off. You can no longer just cut a few trees from the back forty to tide you over next winter. It must be purchased from a utility. The things one can do without, those items with an elastic price, have adjusted to reduced demand. Other items, which are absolutely necessary to consume to sustain life have increased in price. The experience of the current economy for the wealthy in our country is vastly different from the experience of the poor in our country. Our methods of measuring inflation are of great utility for business and industry, but end up hurting the poor by not recognizing that they will have a much different experience than a CEO. Yet we continue to adjust benefits paid to those who cannot work based on information a CEO might be interested in and not on the actual changing experience of those who cannot work. We guide our economy based on a CPI that shows deflation in things that an underemployed person barely scraping by cannot purchase anyway, and fail to recognize that as that person’s income falls, those things which he absolutely must have, as opposed to things that he might want, have gone up in price.

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