Today’s FT has it that Google will construct a ‘Google Price Index’ to track inflation on web traded goods. (read it here). Obviously this will not be representative of the wider offline world. First is the question of internet penetration and e-commerce volume. Second, is that of e-commerce composition, i.e.,the basket is composed and weighted very differently. As the article points out , for example , housing is 40% in US CPI versus 18% on the ‘GPI’. While a measure like this would be a great complement to it , official CPI will not be replaced in the foreseeable future.
But I think it is still very interesting from three perspectives :
1. Influence on macroeconomic research : a web index like this will increasingly mirror the official CPI in the long run. How will ‘traditional’ data gathering and analysis tap into this channel ?
2. Microeconomic relevance : in adequately penetrated markets , an index like this could as relevant/useful for many sectors (e.g. consumer electronics ) as an official CPI, or perhaps even more.
3. Business opportunity for data owners : Digital giants like Google or Facebook with all their data assets could well be entering the realm of economic and market research. How about , for example , Facebook coming up with consumer confidence indices ?
Endless possibilities. And who better than these guys to tap into them !
Some key Google financials in the attached Ballparks file – as also an illustration of how it’s becoming ever more difficult to predict well.
Cheers 
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