The Google Price Index

Google wants to use prices of stuff people buy online to create a new, real-time index of inflation, the FT reports. They're calling it the Google Price Index.

The project isn't quite ready to go yet; Google hasn't decided whether to publish it. And it's unlikely to replace the Consumer Price Index, which is gathered by federal officials who actually go to stores and record the prices of thousands of goods.

Still, the GPI tracks CPI pretty well for stuff that people often buy on the Web, like watches and cameras, according to Hal Varian, Google's chief economist. He said the GPI showed prices falling this year.

For a while now, Google has been working to use Web data to answer broad questions about what's going on in the physical world. The volume of search queries related to flu, for instance, tracks really well with real-world flu outbreaks -- a finding that Google researchers published in the journal Nature.

The company is looking at ways to use search queries to measure other real-world trends, including unemployment.

Varian told the FT that he got the idea for the GPI after his pepper grinder broke. He went online to look for a replacement, and was struck by the list of prices for pepper grinders.

"What's the first thing you want to do if you’re an economist?" he asked. "You want to construct a price index."