Sean King

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Knoxville, Tennessee, United States

Tuesday, October 12, 2010

Deflation is Here, and Google (At Least) Knows It

CNBC.com:
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.


One of the reasons that the official government statistics haven't picked up on this clear deflationary trend is that they exclude so much. For instance, the Consumer Price Index doesn't consider real estate prices, but rather assigns real estate a somewhat arbitrary "rent value" and then tracks changes in rents rather than changes in the value of the underlying real estate.

For these reasons and others, official government statistics are increasingly a joke. Not only are they highly politicized (and therefore manipulated), but they use techniques from the 1960's to measure things that were relevant to the economy of the 1940's.

Consequently, I'm a big fan of "unofficial" economic statistic produced by the private sector--statistic such as those produced at shadowstats.com, the Consumer Metrics Institute, and hopefully soon, Google. Private numbers are more current, less politicized, and far more relevant.

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