Profiting from wrong inflation predictions via own price survey?

michaels

This morning the BBC in particular were banging on about inflation going above 3% which was indeed the market consensus.

In the event the inflation figure was 2.6% and this unexpected outcome moved the markets with GBP/USD falling by 0.5%.

If you had known the inflation figure in advance it would have been easy to predict the fall in GBP and bet accordingly.

As far as I understand it the inflation figure is based on sampling prices for a known basket of goods done by the Office for National Statistics. What is to stop someone with enough resources (perhaps a closed group on the internet could share the workload) carrying out an equivalent sampling exercise and thus working out in advance what the published inflation figure is likely to be and profiteering from this information?

Malthusian

If it was that easy to determine the figure for certain, why would the bookies take bets on it?

The ONS says what the basket consists of but for something like, e.g, a cycle helmet they don't seem to say whether it's a cheap one from Lidl or a top-of-the-range one from a triathlon shop. So if you tried to calculate the figures yourself, without knowing exactly which item from which shop the ONS were using, and then multiply that variance over the hundreds of items in the basket, it's no better than a guess.

michaels

I agree that if you did have a good predictive survey the value would come from not announcing it but the difficulty would be in maximizing profit without moving the market against you. Surely though the possible gains far outweigh the costs of collecting the required info.

Thrugelmir

michaels wrote: »

In the event the inflation figure was 2.6% and this unexpected outcome moved the markets with GBP/USD falling by 0.5%.

To strike a bargain takes 2 parties. At this level of margin you'd have to be trading in very large sums to make doing so worthwhile. Getting the figure wrong could be very expensive. At close was only .10% movement. What other news or volume of trading moved the currency markets today. Wasn't simply the inflation announcement.