Is It Time to Convert to the Google Price Index?

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Month after month, hundreds of government workers descend upon 23,000 retailers and businesses in 90 U.S. cities to jot down prices for products ranging from cereal to surgical procedures, funneling the data into gigantic spreadsheets that the government then manipulates and condenses into one all-important number: the Consumer Price Index. By consulting the CPI, the government can measure inflation and the country's economic health by understanding how much more a consumer needs to spend each month to purchase the same goods.

Annie Lowrey details this process at Slate, only to wonder: is it high time the government update its methods?

The reigning methodology is, well, clunky. It costs Washington around $234 million a year to get all those people to go and bear witness to a $1.57 price increase in a packet of tube socks and then to massage those individual data points down to one number. Moreover, there is a weekslong lag between the checkers tallying up the numbers and the government announcing the changes: The inflation measure comes out only 12 times a year, though prices change, sometimes dramatically, all the time. Plus, the methodology is archaic, given that we live in the Internet age. Prices are easily available online and a lot of shopping happens on the Web rather than in stores.

Lowrey lists a couple of alternative approaches, including the "Google Price Index" developed by the company's chief economist, Hal Varian. The index leverages Google's database of web prices to provide a "constantly updated measure of price changes and inflation"--one that has tracked the CPI closely, though it indicated periods of deflation when the CPI didn't.

Yet the CPI also has redeeming qualities, Lowrey concedes: "It's a stable, tested measure, consistent over time, since its methodology doesn't change much. Moreover, and somewhat remarkably, the [alternative] indices actually seem to confirm the accuracy of the old-fashioned CPI, tracking it closely rather than showing it to be off-base."

"Ultimately," she adds, "there is a good argument for more inflation measures, not just better or newer ones."

This article is from the archive of our partner The Wire.