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Challenges for measuring inflation in a digital world from a monetary policy perspective

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Abstract

Apart from having been a major driver of subdued inflation developments in most industrialized countries in the past 10–15 years, recent key megatrends in the retail industry, such as globalization and digitalization, also pose a number of new challenges for measuring inflation. This article discusses possible effects of growing Internet use on prices, inflation and official price statistics. There is some evidence that the growing importance of e-commerce in recent years has had a dampening effect on both online and offline prices, although this effect is likely to be small and only temporary until the spread of the internet has stabilized. To account for the changing consumption habits resulting from web retailing, the methods and procedures for inflation measurement have to be adjusted to the new conditions. Systematically collecting data from online retailers (through web scraping) in addition to monitoring prices at brick-and-mortar stores and expanding monitoring to include smaller towns and rural areas would reflect new consumption habits and improve the representativeness of the price index. The use of scanner data directly obtained from retailers, furthermore, would allow for a joint analysis of prices and quantities sold, which in turn helps reduce the substitution bias present in conventional price statistics. At the same time, a long-standing issue remains to be solved in inflation measurement: Although the costs of owner-occupied housing account for a considerable share of the total cost of living of households, they are still not included in the consumer price indices of European countries due to methodological complexities. In this respect, experimental evidence indicates that – under normal circumstances – including these costs in official price statistics will most likely not change the euro area inflation figures by much.

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  • Doris Ritzberger-Grünwald & Fabio Rumler, 2019. "Challenges for measuring inflation in a digital world from a monetary policy perspective," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 19/Q3, pages 42-53.
  • Handle: RePEc:onb:oenbmp:y:2019:i:19/q3:b:3
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    References listed on IDEAS

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    1. Yuriy Gorodnichenko & Viacheslav Sheremirov & Oleksandr Talavera, 2018. "Price Setting in Online Markets: Does IT Click?," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1764-1811.
    2. Alberto Cavallo, 2017. "Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers," American Economic Review, American Economic Association, vol. 107(1), pages 283-303, January.
    3. Meijers, Huub, 2006. "Diffusion of the Internet and low inflation in the information economy," Information Economics and Policy, Elsevier, vol. 18(1), pages 1-23, March.
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    More about this item

    Keywords

    digitalization; inflation measurement; owner-occupied housing; scanner data;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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