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GPI Shows a “Very Clear Deflationary Trend”

Posted by Larry Doyle on October 12, 2010 3:04 PM |

Are you scratching your head wondering about the title of this commentary? Are you wondering if I inadvertently mistyped and should have written CPI for Consumer Price Index? Is it possible that I meant to write PPI for Producer Price Index? Am I somehow opining on a new found capability of the fabulous GPS navigation devices? A resounding no to all of the above.

I have been a big proponent of the work produced by Rick Davis of Consumer Metrics Institute. Recall that Rick captures real-time internet related discretionary consumer purchases to measure the overall health and pulse of our economy.  As much as some may question the correlation of Rick’s work and the economic reports released by the crowd in Washington, I am a big fan of his work. I strongly encourage people to follow him. Why do I broach this topic?

Do you trust our Washington establishment to provide real truth and display unquestioned integrity in our economic releases? You don’t? Neither do I. Aside from monitoring Rick’s work, are there other broad based,  independent vehicles with which we can measure economic data? 

Well, how uncanny that the right hand column of today’s Financial Times highlights, Google To Map Inflation Using Web Data,

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. 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 per cent 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.

Mr Varian emphasised 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 per cent of the US CPI, for example, but only 18 per cent 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.

 Mr Varian said that the GPI had been inspired by a personal shopping experience: “A tragedy struck our house a few months ago because my favourite pepper grinder broke.”

 On typing ‘pepper grinder’ into Google Shopping, Mr Varian was struck by the list of prices. “What’s the first thing you want to do if you’re an economist? You want to construct a price index,” Mr Varian said.

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.

Think our friends in Washington are not aware of these trends? Why have Ben and Turbo-Tim effectively forsaken the dollar?  

The GPI is the newest financial tool for ‘sense on cents’. I will be looking for Hal Varian regularly. I encourage you to do the same. In fact I will look to link Rick Davis and Hal Varian. What might we call that?

Sense on cents squared!!

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Scott Suess

    Hi Larry,

    I’ve enjoyed your financial insights for sometime now. But really, must you harp on Obama and “Obamacare.” All of the discussions of misguided Obamacare policies raise the hair from the back of my neck when I think of the injustices carried out by our previous Administration with barely a nod noticed for the failed search for “weapons of mass destruction” which cost our country untold billions and lives.

    Obamacare and all of it’s trimmings is but a mere shadow of an expenditure when compared to the “War on Terror” and the money spent that will never be recovered.

    Why is it so easy to forget why we don’t have money for healthcare for all Americans? It wasn’t just the recent financial meltdown that raided the public treasury. Let’s talk about the redistribution wealth that filled the coffers of the defense industry.

    Of course, no expense shall be spared for the War on Terror, which I think is an arguement almost as bad as mortgage backed securities.

  • LD


    Glad you like my writing but regardless of what you may think of the War on Terror, I do not see how that should necessarily impact one’s views on healthcare. We can never play the ‘if this did not happen, then…” game. Life does not work that way.

    My greatest beef with the article on Obamacare has to do with the CEO’s voice being stifled. Let the program sink or swim on its own merits BUT let people speak their mind. To the extent that the Republicans also stifled voices, I would and do hold them with equal disdain.

    Not sure of the direction of that last shot regarding mortgage-backed securities, so I will leave that alone.

  • TeakWoodKite

    Great read LD

    You see this?

    Japan’s Marubeni Corp and New York investment firm Good Energies are joining Google in financing the planned 350-mile underwater electric cable project, which would be led by transmission-line developer Trans-Elect.

    Google Joins $5 Billion U.S. Offshore Wind Project

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