Real-Time Economic Data Could Be a Game Changer; Startup Uses Phone Photos to Track Grocery Inflation

Real-Time Economic Data Could Be a Game Changer

Startup Uses Phone Photos to Track Grocery Inflation

SUDEEP REDDY

Oct. 15, 2013 12:32 a.m. ET

The world of economic data may be headed for a substantial revision. Private companies are deploying new technology to overhaul a half-century-old approach to tracking changes in the global economy, promising constantly- updated gauges to guide major corporations, hedge funds and governments. The latest entrant, Premise Data Corp., is the first to create real-time inflation data using hundreds of people snapping photos of store shelves and produce carts around the world daily to track price changes.The startup, backed by investors Google GOOG +1.82% Ventures, Andreessen Horowitz and Harrison Metal, will be unveiled Tuesday after quietly building itself for nearly two years.

Premise has deployed 700 smartphone-equipped workers across 25 cities to capture images of products as their prices change daily. Software automatically tags the location of the products down to the individual store and analyzes the images—items such as meat and produce—to gauge quality differences. A user viewing the information can zoom in on images of the products at each retail location, making it a store-shelf version of Google Street View.

Premise’s computers also scroll through websites to automatically grab prices from Internet stores, a process that still provides about 80% of the data the firm uses to create real-time inflation gauges.

In contrast, the Labor Department collects price data by dispatching its staff to collect product prices once a month. The information is then compiled into a monthly inflation report.

Technological innovations such as efficient supply networks and just-in-time delivery “have completely altered human economic activity,” said David Soloff, founder and chief executive of Premise. “Yet the indicators people are looking to are caught in a different era.”

When he planned the company’s Tuesday debut, Mr. Soloff didn’t know the U.S. government would be entering the third week of a partial shutdown that has suspended most official economic data. The political brawl in Washington has focused attention on private-sector economic gauges, such as a widely known private-sector measure of payroll growth by Automatic Data Processing Inc., ADP +1.94% credit-card spending trends from MasterCard Inc. MA +1.33% and housing data from private providers.

Even when the government is open and operating, getting an up-to-date read on an economy’s performance can be perplexing. Reports on inflation, employment and consumer spending—generally based on monthly snapshots—are released with a lag of weeks or months, and they can be revised months later. The shortcomings create problems for investors and policy makers, who have to act in real time even if the economy is changing faster than existing methods can measure.

“There’s still a Cold War element to our statistics,” said Alan Krueger, a Princeton University professor and former top White House economist, who signed on as a Premise adviser two weeks ago. “We’re kind of in a holding pattern. In many situations I found myself wishing we had more current data and broader data.”

For all the struggles companies and policy makers face parsing U.S. economic data, the challenges in many other economies—including questionable data quality and gaps in the figures—are much greater.

Outsiders have questioned Argentina’s inflation data for years. That inspired Alberto Cavallo, an economist at the Massachusetts Institute of Technology, to create his own measures starting in 2007.

The effort eventually became the academic initiative called the Billion Prices Project, collecting data from online retailers around the world to create daily inflation measures. In 2010 it led to PriceStats, which distributes inflation gauges through the financial-services firm State Street Corp. STT +2.24% to about 7,500 clients.

A pioneer in the field, Mr. Cavallo said he welcomes other firms trying to improve available data. Like other economists and executives, he sees the private-sector gauges complementing, rather than replacing, the official measures.

“I have a lot of respect for the things the statistical agencies do,” he said. “They’re very interested in seeing how these techniques could be incorporated into their own methods.”

Mr. Soloff credits PriceStats for its original breakthroughs in the field. He said Premise’s goal is to provide even deeper information—down to the product level rather than just categories of products—and provide the technology platform for a wide range of other economic indicators beyond inflation.

Still, building accurate and reliable indicators will face numerous pitfalls. Economists have struggled for decades with sampling errors in traditional economic reports. A crowd-sourced approach, using people with limited training, could take years of work to filter out noise in the system. Premise’s own price-collectors are part-timers working a few hours a day, earning 10 cents to 30 cents per image captured.

The firm says it has lined up six clients so far in its quiet phase, including a major consumer packaged-goods firm, an investment bank, two hedge funds and a private-equity firm. The data are also distributed through the Bloomberg data terminal, though few subscribers appear to be using it so far. A data feed starts at $1,500 per month per country covered, though the firm is offering free access to many nonprofit and educational organizations.

In a demonstration, Mr. Soloff clicked through the Premise website to show store shelves in China and produce carts in India. His data showed when onion prices started surging in India last summer weeks before the press caught on to the public uproar. That kind of data could be useful to a hedge fund trading currencies before official inflation measures are released.

Hal Varian, Google Inc.’s chief economist and a Premise adviser, said the data could give government officials insight into developments that can stir up their populations. Prices for popular food items—bread in the Middle East, corn in Mexico or pork in China—could be tracked well ahead of popular unrest.

“All these things are sensitive from a political point of view,” Mr. Varian said. “Having up-to-date information is quite valuable.”