How investors are using alternative data to track the inflation debate

With the debate over inflation dominating financial markets as the global economy reopens from the COVID-19 pandemic, investors are turning to a number of so-called alternative-data sources in an effort to get a more timely read on what’s happening to prices around the world.

PriceStats, which joined with State Street in 2011 to bring its data to the financial services sector, scrapes the web, tracking daily changes in prices across a huge basket of goods in 23 economies. PriceStats focuses solely on “multichannel” retailers who offer products both online and offline, which cuts out big online-only retailers, including e-commerce juggernaut Amazon.com Inc. AMZN, +1.58%.

Loh said he’s found that online prices adjust more quickly than prices on the shelves. In 2020, when the pandemic hit, prices tracked by PriceStats fell much more quickly than was reflected by the official data. On the rebound, the basket was showing stabilization making its way into prices, while official data has reflected items not in the basket such as used cars and airline tickets.

An article about rising inflation would receive a negative sentiment score, for example. The score also takes into account any magnitudes mentioned in the story, she explained. For example, if an article reported that inflation climbed 4%, the score would be larger than if prices were up by 1%. Since mid-June the reflation and transitory inflation narratives seem to be oscillating in importance, Grinis said. The reflation narrative rose around the release of June CPI data on July 13, which again came in much hotter than expected. The 10-year yield initially moved higher, but then fell back, in line with a fall in reflation concerns, she said.

While not as timely as data on spending or prices, such readings can offer insights on labor costs and labor shortages, such as rising pay at most big banks for junior bankers, Luo said. It also pays to scan central bank policy announcements, speeches and other documents to pick out patterns.

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