Another reason I don’t trust government price indices

I’ve already discussed lots of reasons, but here’s one more:

The Billion Prices Project (BPP) estimates daily inflation in 70 countries. Rather than physically checking prices in supermarkets, it uses software to monitor 5m products sold by several hundred online retailers. 

.  .  .

The BPP index declined significantly on the day that Lehman Brothers collapsed in September 2008 as online retailers in America immediately cut prices. Official figures did not show a decline in inflation until weeks later.

I’m guessing that not many workers saw their pay slashed on September 15, 2008.  That means real wages rose that day, which helped intensify the recession.

BTW, today we have another round of tight money in America:

The euro fell against the dollar and U.S. government bond prices rose as investors became more skittish about Europe’s debt problems. The euro fell below $1.40 for the first time since May 23 and hit a record low against the Swiss franc. The yield on the 10-year Treasury note fell to 2.95 percent from 3.02 percent late Friday. Bond yields fall when their prices rise.

Falling long term interest rates, falling stock prices, falling forex prices, falling TIPS spreads, and if we had real time data on real estate, falling commercial RE prices.  How does the Fed plan to react?  They’re done steering the economy.  They did it last year, don’t ask them to do it again. If Europe blows up and a double dip threatens, then they’ll rush back to preserve the 3.9% NGDP growth, which will restore full employment by  .  .  .



15 Responses to “Another reason I don’t trust government price indices”

  1. Gravatar of Contemplationist Contemplationist
    11. July 2011 at 11:21


  2. Gravatar of Wonks Anonymous Wonks Anonymous
    11. July 2011 at 11:49

    Did you already comment on the John Cochrane paper that Yglesias highlights here?

  3. Gravatar of marcus nunes marcus nunes
    11. July 2011 at 11:59

    That´s why I called it “Depression”. Today I learned that David Glasner named it a “Little Depression”.

  4. Gravatar of marcus nunes marcus nunes
    11. July 2011 at 12:11

    Wonk Anonymous
    Cochrane is the “anti Krugman”. Both are “political operators”

  5. Gravatar of Indy Indy
    11. July 2011 at 12:20

    I predict they’re going to find a way to do a very large QE3, one way or another. The balance sheet is only 30% larger than it was in November of 2008 after the initial surge. They’re going to need two or three things – cover, “the latest crisis in [name that place] forced our hands…” and/or “inflation expectations dropped and unemployment increased” and timing to avoid potentially interfering with the 2012 elections.

    I think they’ll get their window-of-opportunity sometime late this year. I guess we’ll see.

  6. Gravatar of Benjamin Cole Benjamin Cole
    11. July 2011 at 12:22

    They can still stop paying interest on reserves.

    We need QE3, or NGDP targeting.

  7. Gravatar of Scott Sumner Scott Sumner
    11. July 2011 at 13:07

    Contemplationist, That sounds about right.

    Wonks anonymous, I think I did–does anyone know where? (I can’t find my own posts, I have so many.)

    Marcus, I don’t think he’s been as political in the past, but perhaps he’s becoming more so now. The European debt crises certainly give him an audience. I once did a debate with him, it might still be on the internet somewhere.

    Indy, I hope you are . . . I don’t know if I hope you are right, or I hope you are wrong.

    Benjamin, Or how about all three at once? Actually, if we did NGDP targeting, and eliminated IOR, we wouldn’t need QE3.

    Everyone, I may fall behind in comments, as it is getting quite busy.

  8. Gravatar of Cameron Cameron
    11. July 2011 at 14:02

    The Billion Prices Project is fantastic, now the Fed can know instantly how appropriate easier money is before doing nothing.

    “If Europe blows up and a double dip threatens, then they’ll rush back to preserve the 3.9% NGDP growth, which will restore full employment by . . .”

    To paint an optimistic picture, inflation has already begun to fall and will likely keep falling… Will the Fed really stick to 3.9% NGDP growth with <2% inflation?

  9. Gravatar of Cameron Cameron
    11. July 2011 at 14:10

    Unless another negative supply shock like Libya drives up commodity prices… Interesting that negative demand shocks cause negative supply shocks (via unemployment insurance and such) and negative supply shocks cause negative demand shocks (as the Fed foolishly tightens money in response).

  10. Gravatar of Scott Sumner Scott Sumner
    11. July 2011 at 17:21

    Cameron, Sure, inflation at the GDP level has averaged only about 1.2% during thew recovery.

    Your second point is a good one, and it’s one reason things worked so well in the 1990s. Both sides of policy were doing well, and reinforcing each other. Plus we were getting lower prices from Chinese goods, but they hadn’t started buying cars yet.

  11. Gravatar of Steve Steve
    11. July 2011 at 19:24


    Also, the demand shock in Q3 2008 lead to a crash in agricultural prices going into fall harvest. This lead farmers to reduce plantings and fertilizer use in subsequent years, which allowed prices to spike when the economic recovery ran into unpleasant weather. This in turn created civil unrest in Tunisia, Egypt, and Libya, and produced a large oil supply shock.

  12. Gravatar of Lucas Lucas
    12. July 2011 at 13:19

    It isn’t clear if you’re against government-made indexes or if you’re against indexes made with pre-Internet technology.

  13. Gravatar of ssumner ssumner
    12. July 2011 at 18:24

    Lucas, Yes, I suppose you are right. But weighting is also an issue.

  14. Gravatar of Lucas Lucas
    12. July 2011 at 19:24

    Our government has deliberately destroyed the credibility of the statistics institute. Except for the census and some other things, almost everything is suspect, starting with the CPI. This may provide with a natural experiment to assess the real value of reliable, public statistics.

  15. Gravatar of ssumner ssumner
    13. July 2011 at 12:01

    Lucas, It has become politicized.

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