Original URL: http://www.theregister.co.uk/2010/10/13/google_price_index/

Google tracks inflation with interwebs data

Consumer Google Price Index

By Cade Metz

Posted in Applications, 13th October 2010 13:47 GMT

Google is developing a new-age price index that uses the company's epic collection of web shopping data to provide an alternative means of calculating inflation.

Whereas the official Consumer Price Index provides a monthly measure of inflation based on data collected by more traditional means, the Google Price Index churns out inflation stats far more quickly - using data pulled solely from online sources.

As The FT reports, Google chief economist Hal Varian recently unveiled his Google Price Index project at the National Association of Business Economists conference in Denver, Colorado – though he said the company has yet to decide when or if to publish it.

Varian said that GPI points to a "very clear deflationary trend” for goods traded and sold in the US since Christmas. But in the UK, he said, the GPI indicates a slight inflationary trend, something he attributed to a weak pound.

The GPI, Varian explained, is not a replacement for the Consumer Price Index – simply because online data covers a different subsection of goods and services. Housing accounts for about 40 per cent of the United States CPI, he said, but only 18 per cent of the GPI. The GPI is in line with the CPI on things like watches and cameras, but the figures are quite different on things like cars, which aren't bought online as frequently.

Varian also said that Google is working to use its data for economic forecasting. By tracking the number of searches for "unemployment insurance", for example, the company may be able to predict the unemployment rate. ®