UTokyo daily Price Project

Japanese

FAQs on the UTokyo Daily Price Index

Q1: What is the purpose of the index?

The UTokyo Daily Price Index project was launched on May 20, 2013 by Tsutomu Watanabe (University of Tokyo) and Kota Watanabe (Meiji University & University of Tokyo) to measure and publish the consumer price inflation rate on a daily basis.

Q2: How are prices collected?

The UTokyo Daily Price Index is updated every day and provides information on the daily inflation rate (i.e., the inflation rate between a specific day and 365 days earlier) with only a three-day lag, which is much shorter than the lag for the official consumer price index, which is announced by the Ministry of Internal Affairs and Communications (MIC) once a month with a one-month time lag. This is made possible by employing the scanner data collected daily by Nikkei Inc. from about 300 supermarkets sampled from all over Japan.

The scanner data is produced through the point of sale (POS) system, which keeps records on prices and quantities at the product level. A single record in the scanner data consists of the quantity sold of a product on a given day at a given store, as well as the corresponding yen value. For 2012, the number of products sold at the 300 supermarkets is about 350,000 and the number of records is 400 million. For the entire sample period (from 1988 to 2013), the number of products sold is about 2 million and the number of records is 6 billion.

Q3: What kinds of products are included?

The stores being sampled are supermarkets that sell processed food, beverages, household goods and the like. Consumer electrical appliances and other consumer durables, services, and the like are not covered by the UTokyo Daily Price Index. As a result, the index covers only 17 percent of the official CPI in terms of consumption weight. A list of items covered by the UTokyo Daily Price Index is provided in Table 1.
Table 1: Items included in the UTokyo Daily Price Index

Q4: How is the index calculated?

The UTokyo Daily Price Index is a daily version of the Törnqvist index, which is known in the area of price index theory as one of the superlative price indexes. The daily inflation rate is calculated as the weighted geometric mean of price relatives across products, which are defined as the price ratios between the current period (i.e., today) and the base period (i.e., the same day of the previous year). The weight for a product is given by the arithmetic average of the sales shares of the product in the current and the base period. The weights calculated this way make it possible to accurately identify best-selling products, thereby improving the precision of the index. This is in sharp contrast with the method adopted by the MIC in compiling the CPI, in which prices are collected only for those products that meet prespecified (and only infrequently updated) product type specifications. This method, called purposive sampling, may fail to detect best-selling products, especially during periods of high product substitution by consumers.

Q5: How is the consumption tax treated in the calculation of the UTokyo Price Index?

The UTokyo Price Index is obtained by calculating the price before tax for each product and using these prices to compute the index. This is in line with the MIC index published on this website (see Q9), which is also computed excluding the consumption tax.

Q6: Does the UTokyo Price Index take hikes in real prices (where the nominal price of a product remains unchanged but the size of the product decreases) into account?

At present, it is not possible to reflect price hikes where the nominal price of a product remains unchanged but the volume or weight of the product is reduced in the UTokyo Price Index. However, research to detect such real price increases using POS data shows that in 2007 and 2008 real price increases did have a considerable impact on price developments. Details can be found in the following study: S. Imai and T. Watanabe, “Product Downsizing and Hidden Price Increases: Evidence from Japan’s Deflationary Period,Asian Economic Policy Review, Volume 9, Issue 1, 2014, 69–89.

Q7: How is the Daily Price Index useful?

As a high-frequency, high-precision price index, the UTokyo Daily Price Index makes it possible to closely monitor the effects of policy measures taken by the central bank and the government. The UTokyo Daily Price Index also provides timely information on the inflation rate at the item level, which may be useful for price setters (i.e., manufacturers and retailers) in pricing their products.

Japan has experienced deflation – a gradual decline in the price level – for the last decade and a half. The current administration has made stopping deflation one of its top priorities. For example, in January 2013, the Bank of Japan introduced inflation targeting, with the target being set at 2 percent in terms of CPI inflation, and started quantitative and qualitative easing in April 2013. Against this background, the UTokyo Daily Price Index can be used as a reliable price indicator to detect the end of deflation. It will also be useful for detecting sudden, unanticipated price changes, especially price increases due to excessive monetary easing.

Q8: How did the UTokyo Daily Price Index behave in the past?

Figure 1 shows the UTokyo Daily Price Index and the corresponding Monthly Index for the period April 1989 to June 2013. The Daily Index exhibits high volatility, which reflects the day-of-the-week factor as well as the timing of bargain sales, which may differ across stores. One way to reduce volatility is to take the moving average. Our website shows both the original estimate of inflation as well as its seven day moving average.

Figure 2 shows the seven day moving average of the UTokyo Daily Price Index for the period January 2011 to July 2013. The figure shows that the inflation rate, which had been at around minus 0.7 percent prior to the Great East Japan Earthquake on March 11, 2011, jumped to around 1.5 percent in its wake, reflecting the substantial increase in demand for water, food, and other daily necessities. The figure shows that our daily index is useful to detect such an abrupt and short-lived change in prices.

Q9: Does the UTokyo Index behave differently from the MIC index?

Figure 3 compares the monthly version of the UTokyo Index with the grocery CPI. The grocery CPI is calculated using the item level price index data released by the MIC for items included in the UTokyo Index. The two indexes basically exhibit similar fluctuations, but the inflation rate in terms of the UTokyo Index has been consistently lower by about 0.5 percentage points, indicating that the grocery CPI is biased upward. Also, the UTokyo Index deviated from the MIC index just after the collapse of the bubble in 1992. The UTokyo Index fell quickly after the bubble burst

and the inflation rate dropped below zero (i.e., Japan started to experience deflation) in June 1992, while the MIC index did not show clear signs of deflation until 1995.

Q10: How is the UTokyo Sales Index calculated?

The UTokyo Sales Index shows the year-on-year rate of change in the amount of sales at the approximately 300 supermarkets on which the UTokyo Price Index focuses. Publication of the sales index on this website started on July 7, 2014. The charts on this website show the daily and monthly sales indexes alongside the METI sales index, which is based on data on the amount of sales (of beverages and food) at supermarkets published in the preliminary and monthly reports of the Ministry of Economy, Trade and Industry’s Current Survey of Commerce.

Although the sales index and the price index have in common that they are constructed from the POS data of the approximately 300 supermarkets used for the UTokyo Price Index, there are a number of important differences.

First, the price index is calculated focusing only on products that existed at both points in time being compared (i.e., a specific day and the same day a year earlier). In other words, products that existed a year ago but no longer exist today (i.e., that were withdrawn from the market) as well as products that did not exist a year ago but exist today (i.e., that were newly introduced to the market) are excluded from the calculation. While it would be possible to exclude such products in the calculation of the sales index, the data in the Current Survey of Commerce compiled and published by METI, such as the supermarket sales amount, are not treated in this manner: products withdrawn from the market are included in the reference period and newly introduced products are included in the current period. To make the sales indexes comparable, the construction of the sales index here follows this practice.

Second, the supermarkets existing in the current and the reference period may also differ (for example, a supermarket that existed in the reference period may no longer exist in the current period). The sales index is calculated focusing only on supermarkets that existed in both periods. In METI’s Current Survey of Commerce this is referred to as “existing store basis.”

Q11: How is the sales index useful?

While the sales index literally shows changes in the amount of sales at retailers, conceptually such changes can be divided into those due to changes in prices and those due to changes in the quantity of products sold. The UTokyo Price Index corresponds to the former, and by looking at the UTokyo Price Index and the sales index simultaneously, it becomes possible to gain a more detailed understanding of developments in the economy.

If, for example, an increase in the UTokyo Price Index is observed, we might want to know whether this is due to an increase in demand or whether retailers and manufacturers have become more bullish in their price setting. In the former case, the sales index should also increase. In the latter case, however, the sales index might actually decline. That is, while retailers and manufacturers may have become more bullish, this sentiment is not shared by consumers. Therefore, by comparing developments in the price and the sales index it is possible to learn more about the causes of price changes.

Q12: Can the UTokyo Price Index data published on this website be used in an article or report?

The contents of this website may be reproduced for noncommercial purposes only. In this case, the “UTokyo Daily Price Index Project” should be clearly cited as the source. Unauthorized reproduction of the contents of this website for commercial purposes is strictly prohibited.

Users should be aware that the UTokyo Daily Price Index is compiled using proprietary data and proprietary algorithms with the aim of constructing a price indicator with minimal measurement error; it is not constructed for investment or business transaction purposes. Use of the index is at users’ own risk. No responsibility is accepted for any loss or damage resulting from the use of the index for investment, transaction, or any other purposes.