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Truth in numbers: A new project by MIT Sloan School’s Alberto Cavallo uses mobile phones and crowdsourcing techniques to measure inflation in Venezuela

The project aims to shed light on the country’s chaotic economic environment

Cambridge, Mass., August X, 2017 — Venezuela appears to be teetering on the brink of economic collapse. But, in light of the fact that the country’s Central Bank stopped publishing all inflation data in December 2015, no one has an accurate read on just how dire the situation is. 

Until now. A new research project led by MIT Sloan School of Management’s Alberto Cavallo measures inflation in the country using an unusual and innovative technique: crowdsourcing and mobile phones. Cavallo and his team developed a mobile phone app that allows Venezuelan volunteers to scan the barcode of grocery items, enter their prices, and then send the information to the researchers’ servers. The team then aggregates the data to estimate the level of inflation. Data from the past five months indicates that Venezuela’s inflation rate is about 25% on a monthly basis—which represents one of highest rates in the world.  

“The economic conditions in Venezuela are deteriorating rapidly but up to this point it’s been very hard to know exactly what’s going on with inflation,” says Cavallo. “This is enormously frustrating for economists who want to understand the state of the country’s economy, but it’s also terrible for Venezuelan citizens. The inflation rate is a vital statistic for anyone that wants to make adjustments to their wage, set prices, or make any financial decisions.”

By publishing a price index and a monthly inflation rate estimate, Cavallo and his team provide an accurate picture of the country’s economy. “We are only just starting to see how big an inflation problem the country faces,” he says. “The next step is recruiting more volunteers to send data from as many locations as possible.”

The research—which is part of MIT’s Billion Prices Project—is similar to another study Cavallo conducted in Argentina. That study used an online index that aggregates product and price information from websites of large retailers in the country. Cavallo and his team found that between 2007 and 2015, Argentina’s inflation rate was nearly three times higher than the government’s official estimate—confirming the long held suspicion that the government manipulated its economic data.  

“Ten years ago, the only way to collect economic data of this scale and this type was to rely on the government,” says Cavallo. “The Billion Prices Project demonstrated the power of the internet to dramatically drive down the cost and complexity of inflation measurement. Our newest study is further proof that new technologies and techniques will allow us to collect economic data in ways that have never been possible before.”

Alternative estimates of inflation exist in Venezuela, but Cavallo’s project has several advantages. First, it is an academic project unaffiliated with any political group. Second, the data is updated every day, and all individual prices and codes are publicly available on the website, so anyone can check for mistakes. 

“At this stage we already have one of the largest publicly-available price datasets in Venezuela and the advantage of using phones and crowdsourcing is that the government cannot stop us from obtaining and publishing our results,” says Cavallo. “Our goal is to recruit more participants and create a social movement—one that’s determined to shine a light on government manipulation of data and contribute to economic transparency.”