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Pre-Revision CPI: 9%

Thursday, April 17, 2008 | 11:20 AM

in Commodities | Data Analysis | Energy | Inflation

I have been trying to wrap my head around how the US is enjoying such modest inflation,while Eurozone and Asia are both stricken with much more robust price rises.

As I was mulling this over, Martin Hutchinson reminded us that BLS changed its methodology this year for seasonal adjustments. Hmmm, I wonder if that had any impact?

"Before the adjustment for typical seasonal price fluctuations, the CPI increase was 0.9%. The Bureau of Labor Statistics, which compiles the index, has generally adjusted March numbers downward. In the decade 1998-2007, the average drop was 0.2 percentage points, and the maximum was 0.3. But this year it was 0.6 percentage points. The BLS changed its adjustment methodology in January 2008, but the process appears to have gone wrong.

If this year had followed the 10-year average, the monthly inflation would have been 0.7%, which annualises to an annual rate just below 9%.

That is remarkably close to the inflation rate in China, where the central bank is busy raising rates and squeezing financial institutions. It's well above the rate in the eurozone, where the European Central Bank has held rates constant, without letting troubled banks run out of money. But the Fed has been cutting while prices rise."

That's a little closer to reality than the reported nonsense we got yesterday.

Unless of course you believe that food prices in the US have only risen 4.5% over the past 12 months. Other countries with much stronger currencies are suffering from global food inflation in the double digits -- but we of the free-falling American Peso have inflation under control. Does that smell kosher to you?

And Energy prices up 17% year over year?

Bill King reminds us we know one thing for sure: The lower the CPI is, the more we measure inflation as growth, all the better to generate a higher-than-warranted GDP, and obfuscate the deteriorating economic and financial condition.

Sources:
Let's stop fooling ourselves
Martin Hutchinson
Considered view, 16 Apr 2008 08:14
http://www.breakingviews.com/2008/04/16/Global%20inflation.aspx?sg=breakingstories

Consumer Price Indexes (CPI)
http://www.bls.gov/CPI/
http://www.bls.gov/news.release/cpi.nr0.htm