Normally we rely on governments to produce key economic statistics. But what if you cant trust the

Normally we rely on governments to produce key economic statistics. But what if you canʼt trust the governmentʼs numbers? Thatʼs what happened in Argentina from 2007 to 2016, where it was common knowledge that the government was manipulating the data to make inflation look lower than it really was. In response, researchers at MIT and Harvard created what they called The Billion Prices Project, using online prices to create their own measures of inflation, first for Argentina, then for a number of other countries, including the United States. The researchers found that by the middle of 2015 inflation in Argentina had risen to nearly 27.18%, but official measures showed an annual inflation rate of 14.85%. The story was a bit different for the United States. While official inflation measures reported an inflation rate of 0.17%, the project reported an annual inflation rate of −0.60%. 

The Billion Prices Project played a surprisingly important role in the U.S. economic debate around 2011–2012. At the time a number of prominent commentators were claiming that official U.S. measures of consumer prices were understating the true rate of inflation. One way to see whether this was really happening was to compare the official inflation rate with the independently calculated Billion Prices measure. As it happened, there was very little difference between the two measures; the U.S. government was, in fact, reporting the numbers honestly. 

But if the government numbers are okay, who needs an independent private inflation measure? The answer is that the Billion Prices measure, which is based on online data, can track inflation more or less in real time, unlike the CPI, which is only released once a month.......

QUESTIONS 

1. Why do you think the government of Argentina might have wanted to pretend that inflation was lower than it really was?

2. If researchers can produce a pretty good inflation measure just using online data, why do we need the elaborate process used to create the CPI?

3. Elaborating on Question 2, what things might the Billion Prices index miss? Think about what we said about the weights of various goods in the CPI.