For years Argentina has lied to the world about its inflation rate. INDEC, the official statistics institute, claims the country’s inflation rate stands at around 10%. But estimates by economists—myself included—show that figure is two to three times less than the real rate. According to MIT’s Billion Prices Project, which runs an index that aggregates online price information from the largest supermarkets all over the world and provides real-time inflation estimates, Argentina’s inflation rate is currently about 25%.
This vast discrepancy between reality and what the government claims has been observed since 2007. At that time the government began putting pressure on INDEC, traditionally an independent body, to change its statistical methodologies. It eventually fired workers responsible for creating the price index, and replaced them with employees who had close ties to the government. Since then the official inflation rate has been surprisingly stable—hovering around10%. Read More »
As the U.S. and Europe teeter on the edge of a devastating double-dip recession, India’s economic boom—once considered a bright spot in an otherwise bleak global financial landscape—is also showing signs of weakness.
The International Monetary Fund recently cut its growth projection for India, warning that the country was perilously close to double-digit inflation. (In the past fiscal year, India’s economy grew 8.5%; before the financial crisis, its growth exceeded 9% for three straight years.) The IMF cited “a drag from renewed global uncertainty” as the main reason for the revision, but that is letting India off easy.
Professor of Applied Economics Roberto Rigobon, co-creator of the Billion Prices Project at MIT, asserts that countries with higher inflation are recovering more slowly from the global financial crisis. During a talk that was part of MIT Sloan’s Alumni Weekend, he predicts there will be another financial crisis and that governments will again over-react in an attempt to address it: “Whenever we have a financial crisis, regulation always overshoots.”
Rigobon says that neither rising commodity prices nor monetary expansion explains rising inflation rates, and points out that the traditional measures that governments uses to track the prices of goods are inefficient or suspect. He and MIT Sloan colleague Alberto Cavallo launched the Billion Prices Project, which now tracks online prices of commodities in 70 countries, providing real-time information on major inflation trends. As a result, even after the earthquake hit Japan earlier this year, the Billion Prices Project was still able to monitor prices in that country and track Japan’s inflation rate.
Inflation is a crucial economic indicator in every country, closely monitored by governments, financial markets, and consumers around the world. Yet for nearly a century, the way prices are collected and measured has pretty much remained the same.
In the U.S. alone, hundreds of government workers go to retailers and businesses around the country to record prices for a list of goods and services. This is a costly and time-consuming task, which limits the number of items that can be monitored. With this method, inflation can only be measured on a monthly or even bi-monthly basis with official reports often coming out weeks after the data is actually collected.
To improve this process, we’ve created a way to collect prices daily and on a massive scale using the Internet. Called the Billion Prices Project, our Website publishes daily price indexes and provides real-time inflation estimates around the world. Read More »