Google Price Index…

Google is one company which always has some surprises/exciting stuff lined up.

Hal Varian, chief economist at Google announced in National Association of Business Economists of a new initiative. Google is working on a project which analyses web-buying behavior to determine inflation trends. This project is called as Google Price Index or GPI. When CPI data is available to you with a lag of 14-21 days, this one could be like daily inflation trends. 

Varian explained that analysing web-price trends in US show clear deflation trends since last christmas. For UK we see slight inflation and this could be because of weakness in Pound Sterling.

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 percent 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.

Though  GPI will just act as a complement to CPI and not replace it:

Mr Varian emphasized 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 percent of the US CPI, for example, but only 18 percent 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.

Then there are other projects in pipeline which would help track developments in economy:

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.

Fascinating really. Mint says daily economic data could add to the daily noise but would also be welcome as it challenges government monopoly on the economic statistics.

Varian earlier published two papers on how Google trends could be used:

I came across this paper (which I forgot to link) by Central Bank of Chile economists which worked on the above to determine automobile buying trends in Chile. They find it is very useful:

We have examined whether Google search results provide relevant information about sales of automobiles in an emerging market. We constructed a Google Trends Automotive Index  GTAI) using search queries for Chile, and included this index as a regressor in a family of simple nowcasting models. Our results show that models incorporating Google search results outperform competing benchmark speci cations in both in- and out-of-sample nowcasting exercises.

teresting results. Some economists are already finding it useful especially for microeconomic issues. With the new GPI it aims to get into macro issues as well. With google, you are always in for pleasant surprises. The vision of the place is amazing.

The Google data have a number of characteristics that should make them particularly attractive to decision-makers in emerging markets: (i) They are derived directly from micro user data; (ii) They contain information on a large proportion of Internet users, which is a far more extensive sample than is commonly employed by surveying agencies; and (iii) They are released at high frequency and at regular intervals. Our finding that the accuracy of nowcasting models for automobile sales in an emerging market can be  improved using contemporaneous search patterns suggests that Google data is a promising source of information for  nowcasting components of aggregate demand in short-run models, an exercise which we leave to future research.
 

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4 Responses to “Google Price Index…”

  1. Mladen Says:

    Did you know that much more before Google Price index was announced there was a shadow chrowdsourced price index developed by ex-Google software engineer available at Numbeo.com?

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