So much of the world’s economic steam depends on interest rates, which in turn are tied to inflation, i.e., the rate at which producer and consumer pr
So much of the world’s economic steam depends on interest rates, which in turn are tied to inflation, i.e., the rate at which producer and consumer prices are rising.
But measuring inflation isn’t easy. It is as much art as it is science.
The world’s number one inflation index, arguably, is the United States Bureau of Labor Statistics (BLS) Consumer Price Index (CPI), which has been around for over 100 years.
Not all economists and business leaders are happy with the CPI, however. Its methodology sometimes seems antiquated, and it publishes only once a month. It also relies on a workforce of 477 people who canvas supermarkets, department stores, gas stations and hospitals, often simply jotting down retail prices — not exactly 21st century.
“Basically, they go to stores — whether it’s electronically or in person — and write down prices,” Nationwide insurance chief economist David Berson told Marketplace. “They compare those prices to a month earlier.”
This may be why Truflation.com, a blockchain-based inflation index, is now attracting some attention. It gathers digital data from some 40 “partners” or sources that collectively offer up to around 18 million data points, compared with the CPI’s relatively modest 80,000 data points. Truflation also has a United Kingdom version.
The new inflation index is also updated daily. If rising consumer prices are finally plateauing or beginning to drop, it should be able to pick up changes earlier than the government gauge.
Economist Paul Krugman wrote in a New York Times column in late October: “I’ve been having some fun with a project called Truflation, which supposedly uses the blockchain and was backed in part by crypto types and which I suspect was intended to show that official inflation was greatly understated. What its numbers actually show is a steep decline in inflation over the past year.”
Never mind the dig at “crypto types” — Krugman is a noted crypto skeptic. What’s noteworthy is that this Nobel laureate was taking blockchain-based inflation analytics seriously.
Commenting on Truflation last year, David Harris, chairman of Rockefeller Capital Management, noted: “Their inflation data last fall seemed prescient, as it signaled an upturn before the BLS did. I expect more websites like this which will provide increased ways for investors to assess inflation trends.”
Elsewhere, Base Ecosystem Fund, which invests “in the next generation of on-chain projects building on Base,” Coinbase’s layer-2 blockchain, announced in September that Truflation was among its first six investment recipients out of 800 applications.
Its digital data sources include NielsenIQ, Big Mac Index, Amazon, Walmart, Zillow, Trulia, Penn State University MRI (Marginal Rent Inflation) Index, Real Capital Analytics, Yahoo, Energy Information Administration, OPIS, AAA Gas prices, JD Powers, CarGurus, Numbeo, Statista, CoreLogic, and Kantar, among others.
Cleveland Fed’s Nowcasts
Truflation isn’t the first to venture into real-time inflation prediction. The Federal Reserve Bank of Cleveland created a real-time inflation index called “Nowcasts” back in 2014, and today, the bank issues inflation forecasts each month before the official CPI or personal consumption expenditures (PCE) inflation data are released. Its index is updated every morning at 10:00 am.
The idea is to provide consumers, businesses, financial markets and others a sense of where inflation is now and “where it is likely to be in the future.” For example:
“If a consumer is thinking about taking out a loan, it helps to know how quickly wages and prices will be rising during the life of the loan — after all, it will be much easier to service the loan with stronger wage and price growth.”
The Nowcast model makes use of a small number of available data series “at different frequencies, including daily oil prices, weekly gasoline prices, and monthly CPI and PCE inflation readings,” according to the bank.
It’s had some success, claiming to be “more accurate than the consensus (average) nowcasts from the Blue Chip Economic Indicators survey” and also “more accurate than the median nowcasts from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters.”
A need for real-time gauges
Real-time inflation indexes like Nowcast and Truflation are long overdue, in the view of many. “There’s an important need for independent measures of inflation that are calculated more frequently than once a month,” Omid Malekan, author and adjunct professor at Columbia University’s Business School, told Cointelegraph.
Magazine: 6 Questions for Lugui Tillier about Bitcoin, Ordinals, and the future of crypto
“Today, we have millions of prices that we can observe in real-time, and there is absolutely no reason to first publish inflation data with a delay — so we can see them real-time if we…
cointelegraph.com
COMMENTS