Collecting economic data the Google way

Google’s chief economist, Hal Varian, did some online shopping recently and came up with the idea for a Google Price Index.

“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.

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.

Varian is looking at other ways of 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.