Using Online Prices to Anticipate Official CPI Inflation
The inflation rate a consumer faces should be, in principle, a relatively simple process to measure. Intuitively, a person has a typical consumption basket, and following the monthly average price of such basket should be the inflation rate the individual experiences. This is, however, hard to implement in practice. Complications abound, such as the fact that consumption baskets are rarely stable through time, consumer’s substitute products when they face changes in relative prices, and many products are often discontinued and replaced with new version or even entirely new product categories. At the aggregate level, the inflation rate is even a harder process to characterize. Baskets and consumption behavior differ markedly across consumers, and traditional data collection methods are expensive and very limited in the quantity of goods and the frequency with which they can be sampled.