Nowcasting consumer price inflation using high-frequency scanner data: Evidence from Germany

Guenter Beck, Kai Carstensen, Jan-Oliver Menz, Richard Schnorrenberger and Elisabeth Wieland

No 34/2023, Discussion Papers from Deutsche Bundesbank

Abstract: We study how millions of highly granular and weekly household scanner data combined with novel machine learning techniques can help to improve the nowcast of monthly German inflation in real time. Our nowcasting exercise targets three hierarchy levels of the official consumer price index. First, we construct a large set of weekly scanner-based price indices at the lowest aggregation level underlying official German inflation, such as those of butter and coffee beans. We show that these indices track their official counterparts extremely well. Within a mixed-frequency modeling framework, we also demonstrate that these scanner-based price indices improve inflation nowcasts at this very narrow level, notably already after the first seven days of a month. Second, we apply shrinkage estimators to exploit the large set of scanner-based price indices in nowcasting product groups such as processed and unprocessed food. This yields substantial predictive gains compared to a time series benchmark model. Finally, we nowcast headline inflation. Adding high-frequency information on energy and travel services, we construct highly competitive nowcasting models that are on par with, or even outperform, survey-based inflation expectations that are notoriously difficult to beat.

Keywords: Inflationnowcasting; machine learningmethods; scannerprice data; mixed-frequency modeling (search for similar items in EconPapers)
JEL-codes: C53 C55 E31 E37 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-big, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Nowcasting consumer price inflation using high-frequency scanner data: evidence from Germany (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:282982

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