Wednesday , 20 September 2017


Real-time Inflation Data is Now Available – Finally

Inflation is a significant measurement for the economic health of countries around the world but rates are often reported weeks after data is collected. To address this problem, two professors at MIT Sloan School of Management have launched the Billion Prices Project (BPP) which is the first website to publish daily price indexes and provide real-time inflation estimates. Words: 825

So say Roberto Rigobon and Alberto Cavallo (bpp.mit.edu), in news releases* from their blog which Lorimer Wilson, editor of www.munKNEE.com  (It’s all about Money!), presents below.

They go on to say:

Over the past three years Rigobon and Cavallo developed a methodology to systematically collect prices of items sold by online retailers and compute inflation statistics on a daily basis. More than 5 million prices are monitored every day [500,000 in the USA alone] from categories such as food and beverages, household products, electronics, apparel, and real estate. While the project tracks prices in more than 50 countries, it currently publishes data for a smaller subset that includes the United States (http://bpp.mit.edu/usa/), Argentina (http://www.inflacionverdadera.com/) [and the U.K., Germany, France and Brazil whose data is apparently not being made public].

[Editor’s Note: According to comments by Rigobon recently, the project outgrew its original remit and the university has now entered into a commercial arrangement with State Street Global Markets whereby the data is made available to their clients, such as asset owners, asset managers, hedge funds and institutional investors to analyze future prices and track inflation data ahead of official government figures. Data for the U.S. is currently still available to the public. The graphs below show the findings of BPP, plotted against the latest CPI numbers, as of May31st, 2011. Annual inflation is running at 3.5% according to their figures with May’s monthly inflation at approx. o.4% which equates to 4.8% on an annual basis should the trend continue unabated.]

According to Rigobon, the project provides pricing data not only faster than what is currently available, but also in greater detail across countries. Cavallo notes that the “real time” nature of the data makes it particularly valuable in the current economic environment. “We’ve been tracking prices for three years and were able to detect very clearly when the U.S. recession began and when it ended,” he says. “Our U.S. average online price index started to dramatically drop only two days after Lehman Brothers went bankrupt in September of 2008 and we were able to see prices recovering in early January 2009, well before a trend could be seen in official CPI announcements.”

Cavallo adds that this type of data also is helpful in countries such as Argentina where the official statistics related to inflation are often unreliable. The BPPt has been publishing alternative inflation estimates for Argentina since 2008, and its index has become a widely used measure of inflation there.

In addition to providing inflation estimates, Cavallo and Rigobon also are using the data to conduct research on areas such as price-stickiness, price adjustments to shocks, the relationship between asset and retail prices, sales strategies, and premiums paid for green or organic products around the world.

BPP is not only constructing average price indexes – such as those you can see in the web page – but also construct tracking indexes with the purpose of predicting macroeconomic variables. They are working on forecasting what the BLS will announce in terms of monthly inflation and predicting the CPI seasonally-adjusted announcements, the PCE, and even the GDP. These tracking indexes use the information from daily price changes to improve standard models that predict the macroeconomic performance of the U.S. economy.

[Comments about the BPP in this article are sufficiently interesting to be included here as follows:

Whether or not the BPP can be used to forecast, now or in the future as the project develops further, I suspect it is a useful check on whether inflation is accelerating or decelerating generally. We will have to wait for a good acceleration (or deceleration) to be sure. It is also helpful to dispel notions that the Bureau of Labor Statistics is somehow cooking the numbers to make inflation seem too low (but not telling the Fed, who is acting on their perception that inflation is too low). Unless the BPP is in on the conspiracy, the general level of inflation in developed countries seems to be approximately what the BLS (and other national statistics agencies) is saying it is.]

The Billion Prices Project, says Rigobon, represents “a breakthrough innovation in the field of inflation statistics and is a great opportunity to conduct economics research that was impossible before. We want to improve the way inflation is measured and reported. Our data provides the right level of detail and relevance required to not only track official statistics, but also forecast future trends.”

*http://bpp.mit.edu/mit-sloan-professors/ and http://bpp.mit.edu/us-inflation-tracking-index-november-2010/

Related Articles:

  1. These Indicators Say Inflation to Go to 4% Soon – and 6% by 2014  http://www.munknee.com/2011/06/these-indicators-say-inflation-to-go-to-4-soon-and-6-by-2014/
  2. What Inflation? Take a Look At All the Deflation Around You!  http://www.munknee.com/2011/05/what-inflation-take-a-look-at-all-the-deflation-around-you/
  3. Inflation Coming? Treasury Market Says Otherwise!  http://www.munknee.com/2011/05/inflation-coming-treasury-market-says-otherwise/
  4. Official and ShadowStats Monthly Inflation Rates: 1872 to Present  http://www.munknee.com/2011/03/official-and-shadowstats-monthly-inflation-rates-1872-to-present/

One comment

  1. A reader sent me the following comment which is well worth posting here:

    I spent some considerable time trying to get familiar with what these guys attempt to do, their methodology, their mechanics and comprehensiveness and some sense about whether they have any kind of meaningful weighted index of the stuff that the average citizen uses.

    For example, unless 30 or more percent of their CPI/consumer price index is allocated to housing costs (mortgage interest payments, rent, utilities, insurance) it not only isn’t useful, it is misleading. For Americans, another perhaps 20 percent has to factor in the the costs of health insurance, copayments, prescriptions, etc. Food, both for at home eat in and eat out costs of perhaps 20 percent. Transportation for going to work- public transportation, the costs of car leasing, fuel and maintenance of 20 %.

    There I have 90% of a typical family’s expenditures without allocating anything for income taxes, education, entertainment, vacations, investments, savings and the myriad of other expenditures.

    My point is that any data purporting to be CPI that takes its numbers off the internet, and for most nations in the world, in real time is probably nothing more than a giant hoax. It isn’t comprehensive, weighted, comparable from one nation to another, etc. I think these guys have a great concept, but the realities and obstacles of execution are virtually totally insurmountable especially in meeting what objectives they have.

    I’ll take the US Bureau of Labour Statistics and Statistics Canada numbers any day simply because they purport to try to do what I think is necessary, plus we essentially know how they fudge the data. We make allowances for that. But these guys and their real time computer acquired data for most of the world updated daily. Give me an effing break!