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The Billion Prices Project @ MIT
The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. We currently monitor daily price fluctuations of ~5 million items sold by ~300 online retailers in more than 70 countries.
January 14, 2011
The price is right
The results have very closely matched the government statistics in the United States over the last three years, which gives the researchers confidence the project is working.
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Globally, the Billion Prices Project could even affect countries suspected, unlike the U.S., of releasing dubious inflation information.
Someone better inform ShadowStats that their numbers are a bit off.
Meanwhile, I'll be participating in yet another long-term TIPS auction. It is planned for February 17th and I'll be trying to lock in today's rate of 2.17% over inflation for 30 years.
Thursday: Existing Home Sales, Unemployment Claims, Philly Fed Mfg
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[image: Mortgage Rates] Note: Mortgage rates are from MortgageNewsDaily.com
and are for top tier scenarios.
Thursday:
• At 8:30 AM ET, The *initial weekly ...
11 hours ago
21 comments:
Mark,
I joined you in the last TIPS auction, but not this one. 30 years is a long time.
You have US inflation protection, but you don't have exchange rate protection, and I think the US dollar will not be the lone reserve currency in 30 years. Dollar prices for all the stuff imported from China (almost everything), and oil may significantly outpace US inflation. Of course, the government says the US dollar will be the world reserve currency for a very long time, and they may be right.
The billion prices site has US inflation averaging about 2.5% in 2010, while the BLS reports the last 12 months were 1.5% NSA. I guess that is pretty close.
The project is interesting and worthy. It is really cool to have a micro foundation to validate the official numbers.
Skimming through the methodology paper, I was glad to see they track food prices at supermarkets. However, I could find no mention of gasoline or other energy prices any where.
One last comment before this gets too long. Each household is likely to experience a different inflation rate depending on the products they purchase, substitute, etc. and it is likely to change with their income and tastes. Still, an average macro number is useful.
"Skimming through the methodology paper, I was glad to see they track food prices at supermarkets."
Guest Post: TIPS Vs Treasuries
"Just go to the same store each week and note down the cost of a 24 can pack of Busch Beer. Grain, energy, aluminum, distribution. You will have it all in one simple index."
Mr Slippery,
The billion prices site has US inflation averaging about 2.5% in 2010, while the BLS reports the last 12 months were 1.5% NSA. I guess that is pretty close.
I'm guessing that the BPP has more exposure to commodity prices. If you look back to the last part of 2008 that difference was the other way around.
If you believe that commodity prices are expensive right now then you'd want to be attached to the CPI.
If you believe that commodity prices are cheap right now then you'd want to be attached to the BPP.
I tend to think commodity prices are a bit expensive right now but that's only if Chanos is right about China. I think he is but I wouldn't want to bet my life on it.
If the project uses the same methodology as the CPI, why should the results differ? From time to time, I look at the CPI release. Last time I looked, prices of things like milk, eggs and meat went up by something like 5-9%, yet the overall number for food was barely changed. I am guessing the number crunchers figured that I will cut down on meat and eat more cereal instead. We could go from a society in which everyone eats eggs, meat and cereal to a society in which only very few can afford meat and eggs, while everyone less barely gets by on water and cereal, and this change would never be reflected in the CPI data.
G.H.,
The vitriol against TIPS and the CPI is fairly amazing in that thread.
Good. They won't compete with me in the auction then. :)
Inflation in the UK is well over 3%. Why should it be any different for the US?
nilys,
If the project uses the same methodology as the CPI, why should the results differ?
They do not use the same methodology as the CPI. They track a small subset.
Last time I looked, prices of things like milk, eggs and meat went up by something like 5-9%, yet the overall number for food was barely changed.
I look each and every time I shop and have been doing so since 2000. (I track every penny.) I could point you to food items at Costco that have not risen in price the entire time I've been bearish (since 2004). For example, even with wheat prices up, my spaghetti hoard is still looking silly. As is my canned soup collection.
I would also point out that milk, eggs, and meat prices can be especially volatile.
I paid just $2.03 for a gallon of skim milk at Sam's Club last time I was there.
Better milk prices saved government money in 2010
Dairy farmers suffered through a prolonged price slump in 2009, when their average price received was $11.94 per hundred pounds, far below most farms' operating costs. The downturn pushed some local farms out of business and had others on the brink. That price plunge differed from the previous downturn in 2006 because the most recent drop was so severe and lasted so long, McCormick said.
Note where $11.94 per hundred pounds shows up in the following chart.
Dairy Products
Here's another chart worth looking at.
Producing Milk in the Past Decade
Inflation adjusted milk price hit a low in 2009. We've bounced off that a bit.
Milk did not keep up with the CPI from 2000 to 2009. In other words, I would have been worse off having my TIPS tied to milk prices than if they had been tied to the CPI.
Anonymous,
Inflation in the UK is well over 3%. Why should it be any different for the US?
Why should it be the same? We're two different countries with two different governments and two different currencies.
It's not like the USA just raised its Value Added Tax (VAT). We don't even have one.
Rise in VAT will help push inflation to 4pc
VAT went up last year and if it hadn’t, then we would have seen inflation fall back.
Believe it or not, I have never been to either Costco or Sam's Club.
But the CPI data seems to confirm my anecdotes. I am learning to use this toy at the bls website (http://www.bls.gov/cpi/#data ). I pulled historical data for all urban consumers and cereals and cereal products. The index for this category was essentially flat from 2000 to 2007, jumped in 2007 and was notably declining since. Then I pulled historical data for all urban consumers and 'meat, poultry, fish and eggs'. The index for this category steadily increased from 150 in 2000 to 210 mid 2008, briefly declined and took off in upward trajectory in the late 2009, already surpassing the 210 high.
nilys,
For what it is worth, eggs had a recent recall driving prices higher. Chicken prices have been stable at Costco (I buy frozen boneless skinless chicken breasts).
I had hoped to see a good Super Bowl meat sale but no such luck. Still working down my london broil supplies (frozen with a food saver a year ago).
The biggest rise I've seen is probably sugar. It's over $6 for a 10 pound bag now. For those well off, 60 cents a pound is barely worth mentioning. For the poor, it can be a big deal though. Sigh.
Someone better inform MIT that prices have NOTHING to do with inflation. Just ask Mish.
These MIT folks are probably Keynesian clowns. ;)
nilys,
"I am guessing the number crunchers figured that I will cut down on meat and eat more cereal instead."
[ANECDOTE]
I've been buying Post Raisin Bran at Wal*Mart for about 9 years now. Since 2002 it has been priced at $2.50 for a 25 oz. box. For a brief time in 2004 it dropped to $2.38 but it soon returned to $2.50. In September of last year the price "skyrocketed" to $3.00! That's a 16.7% increase all at once! After 9 years.
[/ANECDOTE]
Should I blame QEII? With regards to inflation/deflation, who should I believe? .gov, bloggers, or my receipt at the grocery store and gas pump?
mab,
Inflation is always and everywhere a monetary phenomenon!
Deflation is always and everywhere a collapsing credit and excess production capacity phenomenon!
Perhaps there's a Nobel Prize in Economics waiting for the first economist to create a grand unified theory that actually balances "excess money" and "excess stuff". ;)
Mark,
Well, if you just trade the excess money for the excess stuff....
that should even things out, right?
I always have a problem with the terminology. Excess demand for money seems a bit of an oxymoron to me. I'm sure I'm missing something.
G.H.,
"That's a 16.7% increase all at once!"
OMG! If we extrapolate the short-term trend it will be $12 a box in 9 more years, $48 a box in 18 more years, and $192 a box in 27 years! I'm going to invest in a deep freeze and hoard it in bulk!
"After 9 years."
As this additional information does not support my "sure thing" money making theory, I'm going to throw out 8 years of your data. I NEED16.7% returns! Mwuhahaha! ;)
nanute,
"Well, if you just trade the excess money for the excess stuff....that should even things out, right?"
I think that's exactly why our CPI has been tame overall, confounding both the pure deflationists and the pure inflationists.
My theory has been that we've combined the deflation of a depression with the inflation of the 1970s. We ended up with something in the middle and high unemployment common to both.
"OMG! If we extrapolate the short-term trend it will be $12 a box in 9 more years, $48 a box in 18 more years, and $192 a box in 27 years! I'm going to invest in a deep freeze and hoard it in bulk!"
OK Mark, I see your disguised point (rolling eyes), namely that on an annualized basis the price of my cereal has increased only 1.85% per year.
But my post was merely pointing out what a shock it was to me to see such a dramatic move in a single price point on a product at the low end of the scale at a store that holds prices down like few others.
Mark,
Prices on food can be very local.
In Chicago, some stores use milk as a loss leader, and some don't. Some stock only 1 brand and some stock 3 (not including specialty ones like organics etc.). Also, some places like Walgreens seem to stock milk once a week and if they didn't sell a certain amount in the first 4 or 5 days will mark it down for the last 3.
Pasta here has gone up and down so much it's silly. A year ago it was about $1.29 a pound, now it's about 89 cents. A couple years ago it was 79 cents, then shot up and stayed high for over a year.
I will say this about groceries in chicago: the prices at the large chains are astronomical. And Wal-Mart does not have the lowest local prices, the small local grocers (and there are many) are killing them all on price, but are not spending the money on marketing to attract more customers. And I hope it stays that way. The chains are only competitive on fresh produce and meat, but are still a few percent higher on most items; on packaged items the chains are at 20-30% higher on over 80% of the items.
Charles Kiting,
...on packaged items the chains are at 20-30% higher on over 80% of the items.
I hear you. I don't understand why anyone wants to pay a premium on packaged items.
The chains often have doorbuster sales to draw you in though. I generally stock up big time when that happens. I read the fliers every week and pounce on them. I'm not the kind of customer that the grocery stores want to see. I only shop the sales (and not the 10 cents off on a $3 package sales either).
Mark,
The price of beer this weekend was so cheap I almost bought several cases. But I've curtailed my drinking so much I didn't bother.
Anyone keeping their eyes peeled on the fliers will get to eat cheap, but you have to hit several stores and buy to the limit. My grandmother did this ever since I can remember, and she didn't drive. Easy to walk 3 miles when you're retired. I think all that walking extended her life by 15 years.
Charles Kiting,
Easy to walk 3 miles when you're retired. I think all that walking extended her life by 15 years.
Is that 3 miles one way or round trip?
I ask because I live 3 miles from my local QFC.
Based on what I think the economy will do, I might wish to walk backwards just so I don't risk outliving my nest egg. ;)
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