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Economy 4.0

Alternative Indicator: Brought to You by Google

Emilie Mutert Oct 12, 2010

Using its massive collection of e-shopping data, Google is working on an index that accounts for a daily measure of inflation.

What is it?

There isn’t currently an official Google Price Index, as Google hasn’t even decided whether or not to publish it. But, according to the company’s chief economist Hal Varian, this GPI shows a “very clear deflationary trend” for web-traded goods in the US since last Christmas.

What does it measure?

In contrast to the Bureau of Labor Statistics’ Consumer Price Index, which gathers data by hand from shops and retailers and gets published monthly, the still-in-progress Google Price Index will be an up-to-date measure of the cost of what people buy daily – online, anyway.

How do they get there?

Google knows what we do online. When people use Google Shopping, Google remembers and keeps track of what people search for and what they purchase. People’s search terms in the regular old search engine may also be good indicators, since often consumers will type, say, “auto insurance” into Google when they want to buy auto insurance.

What does it tell us (really)?

According to Google’s chief economist Hal Varian, the idea of the Google Price Index is that it highlights how economic data can be gathered way faster using online data. For now, the traditional Consumer Price Index is a more holistic measure of the cost of what people are buying. But once we all start living in the matrix, we’ll be buying everything online, from cars and car parts to our homes (presumably).

But nobody’s perfect

Not even Google. Right? 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 from the mix in the wider economy. Like, housing accounts for about 40 percent of the US CPI but only 18 percent of the GPI. Ideally, Google’s web shopping data could be used in combination with traditional, on-the-ground consumer data.

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