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Predicting Food Price Inflation through Online Prices in India
Food and beverages price data from a leading online marketplace is used to compute an online price index. This index successfully tracks the offi cial consumer price index not only at the aggregate level, but also at the subgroup level. The results indicate that online prices can be a quick and effi cient source of price data, which can provide a cheap, but credible, signal of infl ationary pressures on a real-time basis.
The online e-commerce market provides us with a unique opportunity to construct price indices and measure inflation. The advantages of using online prices over price data collected through traditional means are many. One, data collection is quicker, cheaper, and more efficient than conventional methods. Two, data can be obtained much more frequently through special softwares, which have capabilities of crawling through a vast number of items in online marketplaces. And, three, the quantum of data is often large and the quality better, since it circumvents the possibilities of human error.
However, online prices may not have some other desirable characteristics. Even though the e-commerce industry is growing at the rate of over 60% per year, market penetration has largely taken place only in the 10-odd major metropolitan areas of India. Consequently, it is a challenge to replicate the basket used to calculate official statistics, using online prices only. Therefore, whether online prices track the official price index is an empirical question. This article is an attempt to address this issue.
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