MIT Sloan professors publish real-time inflation rates around the world in “Billion Prices Project”

November 8, 2010 by Alberto Cavallo Leave a reply »

CAMBRIDGE, Mass., Nov. 8, 2010 – 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, Professors Roberto Rigobon and Alberto Cavallo at MIT Sloan School of Management have launched the Billion Prices Project (http://bpp.mit.edu), the first Website to publish daily price indexes and provide real-time inflation estimates around the world.

Over the past three years, the team 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 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 U.S. and U.K. as well as Argentina, Australia, Brazil, Chile, China, Colombia, France, Italy, Turkey, and Venezuela.

According to Rigobon, the project provides pricing data not only faster than what is currently available, but also in greater detail across countries. He points to the earthquake in Chile last winter as an example. “We tracked the prices of basic foods, water, and construction materials after the earthquake, which would be helpful information for government leaders trying to make decisions in real time.”

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.”

He 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 Billion Prices Project 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.

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.”

For more information on the Billion Prices Project, please visit: http://bpp.mit.edu/

For more information on Prof. Rigobon, please visit: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=SP000109&co_list=F

For more information on Prof. Cavallo, please visit: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=Sp000515&co_list=F

  1. lusavka says:

    You need to explain what weights you use for different products in your index, otherwise it’s not clear how reliable your index is. Could you please expand description of your index weighting in the “methodology” page? Thanks

  2. Shawn McFarlane says:

    Three methodological questions:
    1. Do you track online retailers that sell houses, cars and services? Because those are major components of an American’s spending habits. Without data on them, how can BPP be a good predictor of the overall price level? This seems to be your goal, based on Prof. Cavallo’s claim in the press release (above).

    2. Several major online retailers provide free shipping for orders over a certain dollar amount. This offer would seem to distort prices at these sites. Does BPP account for this?

    3. Many online retailers embed a 2-3% margin for products so they can pay other websites a 2-3% referral fee. For instance, a blog does a book review, and links to Amazon.com with the book’s webpage. The blogger gets a commission for the referral. To make it worth the blogger’s time, Amazon embeds 2-3% in the price, so blog readers can’t disintermediate the blogger’s referral by just opening up a new browser window and buying the book direct from Amazon without the referral.

  3. bagehot says:

    Incredible what you have set out to do and accomplished to date, as well as the plans for broading the global scope including developed countries as well. I suggest you both start taking Swedish lessons –Tackar så mycket (thank you very much) 2025 will be here tomorrow.