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How do economists track the prices of things like milk, produce, furniture and other retail products? Do they have people with clipboards going out to stores and gathering data? Scrape web sites? Convince retailers to report prices voluntarily? How precise is the process?

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All of the above. There are scientific methods for surveying. Generally the "people with clipboards" is the most reliable, but is also the most expensive, so some might be getting the data directly from the retailers with some sampling for verification. The "margin of error" percentage is directly related to the method chosen.

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I wonder how prevalent such practices are in the private sector (including both companies researching competitor prices and independent research companies selling data to retailers). –  cespinoza Aug 16 '11 at 7:37
    
@cespinoza It happens all of the time. Analyst firms gather the data, and even local store management will check up on competitors. Wal-Mart used to be well known for giving General Managers the authority to adjust prices to beat competitors, and even source local produce at lower prices. Not sure if that's still true. –  duffbeer703 Aug 16 '11 at 12:42
    
WalMart seems to be losing that price war according to their most recent filings (August 2011)... –  Turukawa Aug 16 '11 at 13:58

For the CPI, there is actually federal employees whose job it is to visit various stores to collect the prices of specific items (boy's size-14 collared shirt made of 97 percent cotton). Planet Money did a great podcast on this, actually following one of these people for a day.

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+1 for Planet Money. Great podcast. –  Patrick Aug 16 '11 at 22:14

Assume you're asking about things like the Consumer Price Index? Different countries have different approaches. If they're honest, then the statistical sampling is conducted independently and consistently, with a clear publication schedule, and - as littleadv answered - by the men with clipboards.

It is that publication schedule which leads to a little flurry of speculation as investors try to guess what unemployment, growth or inflation figures may be immediately prior to release.

For many countries, such inflation measurement is entirely political, and so the statistical sampling is anything but honest or consistent. Argentina's official inflation rate, for example, is 9.7% but analysts regard the real inflation rate as closer to 25%. Places like Venezuela, Zimbabwe, Iran and even Egypt (prior to their revolution, who knows now) all manipulate statistics to portray their countries' economies in a better light.

However, even in the US where the Bureau of Labour Statistics (BLS) has been nominally independent for over a century, the choice of what to include in the Consumer Basket (the official basket of items chosen to reflect cost-of-living, and measured by the men with clipboards) is not always honest. For 30 years the US basket has excluded house prices, because they were too volatile. Enter house-price credit disaster...

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I wasn't specifically thinking about CPI, though obviously that's relevant. I was wondering about the general methodology b/c I often hear on the evening news about how, say, tomato prices soaring after a cold winter, or how wheat-containing product prices rising due to climate issues, which raises the question "how do you track such prices, when prices vary quite a bit in time/location". –  cespinoza Aug 16 '11 at 7:35
    
@cespinoza It's a combination of factors. Projections on tomato or milk prices will be based on information from wholesalers, government, trade associations or other organizations and survey data. Usually there's an analyst somewhere who does nothing but study trends in wheat or tomato production. I knew someone who did this with hay for most of the east coast -- he knew everything there was to know about hay, including local price fluctuations. When local markets were getting $2.00/bale, he would ship it somewhere and sell for $15/bale! –  duffbeer703 Aug 16 '11 at 12:55
    
Yes, peculiar world, and you can always check out the future prices of a range of commodities at places like CME, NYMEX, etc. –  Turukawa Aug 16 '11 at 13:57

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