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Truth or CONsequences?

May 21, 2024

Truth or CONsequences?

When your government cons you daily with its statistical “facts,” it’s hard to keep your balance. Conned-sumers are feeling the cognitive disconnect from reality.

For years, I’ve been saying it appears the BLS (Bureau of Lying Statistics) publishes fake labor statistics. The numbers always look like the seasonal adjustments are used by each administration to try to make the numbers look better, which means we are operating our country on delusions, not on facts. Ultimately that cannot possibly be as good for the nation as seeing reality as it is and dealing with it together.

Never, however, have the numbers looked so blatantly fake as they have under the Biden administration, and I’ve been pushing that point for months now. Then along came a major mainstream publisher (CNBC) who finally said (first I’d ever heard from the mainstream financial press), “These numbers look rigged.” And now, at last, comes a US congresswoman who tells the head of the BLS she should lose her job if she cannot come up with real numbers, pointing out, as I have for some time now, that it seems a bit too convenient that the numbers always come out initially looking great for her Boss, #NoMoJo Biden, and then get revised down to a more dismal reality later in the year when practically no one is looking … and that this happens EVERY SINGLE MONTH and ALWAYS IN THE SAME DIRECTION!

The fluctuating statistics have finally caught the attention of lawmakers in Congress. Last week, Rep. Mary Miller, R-Ill., grilled Acting Labor Secretary Julie Su about her Biden-friendly reports.

“I pressed the Biden Administration on why their jobs numbers are consistently wrong and quietly revised downward after they are announced. What is going on at BLS?…”

— Rep. Mary Miller (@RepMaryMiller) May 3, 2024

…click on the above link to read the rest of the article…

Expect Big Negative Revisions to BLS Monthly Jobs in 2023, GDP Too

April 26, 2024

Expect Big Negative Revisions to BLS Monthly Jobs in 2023, GDP Too

Yesterday, the BLS released a little-read jobs report that shows reported jobs in 2023 may be wildly overstated. In turn, that means GDP is likely overstated as well.

Business Employment Dynamics (BED) data and and Monthly Job Data both from the BLS, chart by Mish

BED Chart Notes

  • Data is from the BLS Business Employment Dynamics (BED) report and the BLS monthly jobs reports (CES).
  • BED data is less timely but far more accurate than the BLS monthly jobs reports/
  • For 2023 Q3, the BED reports shows gross job gains of 7.559 million and gross job losses of 7.751 million for a net loss of 192,000 jobs.
  • The BLS monthly jobs reports show a gain of 640,000 jobs.

BED Job Gains and Losses by Quarter

Summary of Major Differences

Note that BED data is based on 9.1 million establishments while the monthly jobs reports are only based on 670,000 establishments.

The monthly reports are timely but inaccurate. And the BLS annual benchmark revisions do not also revise the monthly numbers. This makes year-over-year comparisons inaccurate as well.

I created the lead chart by netting BED data and comparing the BED net jobs to net quarterly jobs from the CES data.

BED vs CES

  • 2023 Q2 BED: +332,000
  • 2023 Q3 BED: -192,000
  • 2023 Q2 CES: +821,000
  • 2023 Q3 BED: +640,000

CES Overstatement

  • 2023 Q2 CES Overstatement: 489,000 Jobs
  • 2023 Q3 CES Overstatement: 832,000 Jobs
  • Q2+Q3 Overstatement: 1.321 Million Jobs

Thus, the BLS says that the BLS monthly job reports for 2023 Q2 and Q3 are overstated by a total of 1.321 million jobs.

Jobs Up 303,000 Full Time Employment Down 6,000 in March

In March, the economy continued to add a high percentage of government and social assistance jobs. Part time employment rose by 691,000 as full time employment fell by 6,000.

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

…click on the above link to read the rest of the article…

Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System

April 5, 2024

Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System

If a formula spits out a number you don’t like, just change the formula so you get a better number!

That’s exactly what the Bureau of Labor Statistics did to the Consumer Price Index formula in the 1990s. Because the CPI kept indicating price inflation was too high, the BLS tweaked the formula to spit out a lower inflation number.

Now the International Swaps and Derivatives Association (ISDA) is trying to talk the Federal Reserve into changing the formula for the supplementary leverage ratio (SLR) to make bank balance sheets look better.

This proposal sends some alarming messages about the stability of the banking system and confidence in U.S. government debt.

What Is the SLR and Why Do They Want to Change It?

The SLR is calculated by dividing the bank’s tier 1 capital (capital held in a bank’s reserves and used to fund business activities for the bank’s clients) by all assets on the bank’s balance sheet, including U.S. Treasuries and deposits at Federal Reserve Banks.

Banks use the SLR to calculate the amount of equity capital they must hold relative to their total leverage exposure. Regulations imposed after the 2008 financial crisis require category I, II, and III banks to maintain an SLR of 3 percent. “Globally Systemically Important Banks” are required to keep an extra 2 percent SLR buffer.

During the pandemic, the Fed temporarily altered SLR requirements, allowing banks to exclude Treasuries and reserves from the formula’s denominator. This made it easier to maintain the required SLR ratio.

As a Federal Reserve note explained, the banking system “exhibited considerable strains” during the reign of COVID-19. As the pandemic unfolded and governments began shutting down economies, banks quickly liquidated risky assets and increased their cash holdings. This resulted in a “sharp increase in bank deposits.”

…click on the above link to read the rest of the article…

Today’s Contemplation: Collapse Cometh XXII–‘Net Zero’ Policies: Propaganda to Support Continued Economic Growth

October 12, 2023

Today’s Contemplation: Collapse Cometh XXII
June 22, 2021
Knossos, Greece (1993) Photo by author

‘Net Zero’ Policies: Propaganda to Support Continued Economic Growth

A personal view of the ‘Net-Zero’ policy being implemented by governments around the world, particularly those of the ‘West’.

As happens so often (always?), the ruling elite are manipulating what is possibly one of our more (most?) existential dilemmas so as to have their cake and eat it too. The chicanery that takes place within statistical calculations is widespread and occurs in virtually everything they touch but of course gives the impression of ‘objectivity’ and ‘transparency’ because figures can’t lie (although liars can figure, simply take a look at the statistical manipulations that take place in determining a nation’s consumer price index). The trickery goes far beyond numbers, however, for the use of statistics is just one of many narrative control mechanisms used to support the stories they want citizens to believe.

They have leveraged carbon emissions as THE most pressing environmental/ecological issue (even though it is only one of many predicaments resulting from humanity overshooting its natural carrying capacity on a finite planet) and have presented a variety of ‘solutions’ from carbon taxes to widespread ‘electrification’ of society to ‘net-zero’ policies. I would argue all of these ‘solutions’ derive from their primary motivation: the control/expansion of the wealth-generating systems that provide their revenue streams. From ever-increasing taxation to capital reallocation towards ‘green/clean’ technology to increasing curtailment of once-expected liberties and mass surveillance, the ruling elite are enhancing and consolidating their grip on wealth and power but marketing it as a necessary societal shift to ‘save’ humanity from itself.

There is certainly a grain of truth in all of the efforts to shift society away from fossil fuels. Apart from the fact that fossil fuel exploitation has encountered significant diminishing returns on its investments, I am increasingly convinced humanity has blown past several very important biophysical limits that exist on a finite planet and if it wishes to make it out of the other side of the very narrow bottleneck we have created for ourselves some very difficult choices need to be made. The ruling elite, however — as they always do — are taking advantage of various crises for their own self-serving ends. They are selling a ‘Build Back Better’ narrative to the masses — as snake oil salesmen do — as beneficial for everyone while accruing the benefits to themselves that may come from this shift in what remains of our dwindling resources, especially energy, for our use.

There is massive evidence that we have reached significant diminishing returns in our exploitation of fossil fuels and there exist no comparable replacements. This has gargantuan implications for our exceedingly complex and global industrial world. The energy decline it portends CANNOT, with current technology, be offset. Yes, there are ‘potential’ alternative energy sources but none are currently available at scale or cost, or offer the energy-return-on-energy-invested that fossil fuels have — in fact, many are just concepts on paper or test projects and critical views of them show they offer little if any surplus energy; to say little about the hard fact that they all depend upon the fossil fuel platform from the mining and processing of raw materials to the construction and maintenance to the after-life care and disposal of waste products (resulting in further environmental/ecological distress).

And even if by some miraculous turn of events we were to discover a truly ‘green/clean’ new energy subsidy to replace the relatively inexpensive and easy-to-access/readily-transportable fossil fuels that have allowed almost all of our expansion and ‘progress’ the past couple of centuries (but especially the past 100–150 years), this would do little to address the variety of other negative consequences of humanity’s spread and impact across the globe (e.g., biodiversity loss, soil fertility issues, etc.). Powering all of our technology and complexities does NOT address the underlying cause of our dilemmas: ecological overshoot.

Rather than acknowledging our plight, our elite are actually doing the exact opposite of what very likely needs to be done to address overshoot. They continue to pursue the perpetual growth chalice taking humanity even further down a path that is becoming both narrower and far more dangerous for most if not all.

The elite are well aware of the human tendency to defer to ‘experts’ and ‘authority’ (think Stanley Milgram’s shock experiments) and think in ‘herds’ so as to go along with the ‘mainstream’ narrative even if it goes against our own experiences and observations, so they dispatch their narrative managers/propagandists. These people have been working overtime crafting comforting and cognitive dissonance-reducing tales to overwhelm the contrarian evidence that shows the emperor has no clothes. To say little about Big Tech increasingly censoring alternative narratives.

The ‘net-zero’ propaganda is a perfect example. It continues to push expansion (the very cause of our dilemmas), particularly of certain ‘solutions’, while marketing itself as the road to sustainability because, you know, it all evens out in the end. Sit back, relax, fire up the Netflix, watch another sports event, your ‘leaders’ have everything under control. Pay no attention whatsoever to the kerfuffle behind the curtain over there. We can have our cake and eat it too!

Gold Establishment Supports Central Bank Secrecy instead of Exposing it

November 9, 2022

Gold Establishment Supports Central Bank Secrecy instead of Exposing it

This week, the World Gold Council (WGC), which is a gold market development organization representing 32 of the world’s gold mining companies, published the latest quarterly edition of it’s well-known “Gold Demand Trends” research publication.

In the latest edition, which is titled “Gold Demand Trends Q3 2022”, the World Gold Council claims that during Q3 2022, “central banks continued to accumulate gold, with purchases estimated at a quarterly record of nearly 400 tonnes.”

And for my Next Trick

According to the WGC:

“Global central bank purchases leapt to almost 400 tonnes in Q3 (+115% q-o-q). This is the largest single quarter of demand from this sector in our records back to 2000 and almost double the previous record of 241t in Q3 2018.

It also marks the eighth consecutive quarter of net purchases and lifts the y-t-d total to 673 tonnes, higher than any other full year total since 1967.”

Specifically, the World Gold Council claims that Q3 2022 central bank gold demand was 399.3 tonnes, which is a massive 340% higher than Q3 2021.

The infamous 399.3 tonnes of gold in question – Source WGC GDT Q3 2022

Sounding impressive enough, the world’s financial media not surprisingly ran with the soundbite, publishing articles with headlines such as “Record central bank buying lifts global gold demand, WGC says” and “Central bank gold purchases set an all-time high” and “Central banks are buying gold at the fastest pace in 55 years”.

Until that is, you read a bit further and see that the World Gold Council added a caveat for Q 3 2022 central bank gold demand, saying that for “Q3 net demand includes a substantial estimate for unreported purchases”.

Rabbit out of a Hat – Central bank gold demand data?

Wait, what was that? The Q3 gold buying from central banks includes “a substantial estimate for unreported purchases”?…

…click on the above link to read the rest…

World population is growing faster than we thought

August 4, 2022

World population is growing faster than we thought

We’ve all heard the aphorism ‘Lies, damned lies and statistics.’ Statistics are an invaluable tool for understanding and responding appropriately to the world, but when the numbers say one thing and the headlines say another, it’s a cause for concern. TOP takes a dive into World Population Prospects 2022.

The world’s population has grown more than anticipated in the past three years.

That should have been the headline when the United Nations released its latest revision of world population data (World Population Prospects 2022) on 11 July. Instead, the headline was that global population would peak in 2086 at 10.4 billion, about 15 years earlier and half a billion fewer than projected in 2019.

Is this fake news? Why should greater-than-anticipated growth yield lower future growth projections? Let’s look at the data they have given us. Apologies if this article is a bit nerdy, but the UN projections play an important role in government planning throughout the world. Any criticism of them needs to be thoroughly justified.

Figure 1 shows the world population as it was estimated in each revision of World Population Prospects (WPP) from 2010 to 2022. The pink line connects each revision’s estimate of the current population, i.e. the mid-2010 population as estimated by WPP2010 connected to the mid-2012 population as estimated by WPP2012 etc. Using this rolling-current estimate avoids any bias in the UN’s model that might be influencing the slope of the projected line.

In blue dashed lines are the projected growth anticipated in each of those revisions. With the exception of 2019, where recent past estimates closely matched what was expected in 2017, each new revision has concluded that growth since the last update was greater than they anticipated.

The world population estimates for each successive revision of World Population Prospects from 2010 to 2022 have been higher than the previous years'

…click on the above link to read the rest of the article…

Mere statistics

June 25, 2021

Mere statistics

For the last half-century, then, we have experienced what might be called “relative energy poverty.”  This is evident in this recollection from Guardian columnist Ian Jack:

…click on the above link to read the rest of the article…

The CPI Revisited And Its Failure To Reflect True Inflation

May 24, 2021

The CPI Revisited And Its Failure To Reflect True Inflation

The cost of living numbers prepared by the Bureau of Labor Statistics are highly misleading. Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This extended into the BLS re-weightings sales outlets such as discount or mass merchandisers with Main Street shops. Those promoting this change claimed it was simply another way to measure inflation and it still reflected the true cost of living.  

 
The fact is, politicians and those behind this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water as to just how much we are being impacted by inflation. The general argument used to promote this change was that changing relative costs of goods results in consumers substituting less-expensive goods for more expensive goods.
Allowing for a substitution of goods within the formerly “fixed-basket” supposedly allows the consumer flexibility in obtaining a “constant level of satisfaction.” This adjustment to the inflation measure was touted as more appropriate for the GDP concept in measuring shifting demand and weighting actual consumption. Other tricks were also used to give the illusion of less inflation. In cases where the quality of the product are deemed by the government to be “improved” prices in the CPI, calculations are now adjusted lower to offset the higher quality. Extending this idea the Baskin Commission Report, December 4, 1996, actually used steak and chicken for its substitution example.

…click on the above link to read the rest of the article…

Lies, damn lies and statistics: moderating the tyranny of numbers

April 25, 2021

Lies, damn lies and statistics: moderating the tyranny of numbers

Quoting numbers, whether denominated in dollars, deaths or whatever, has always been a favourite way of adding weight to an argument.

Metrics are gamed in order to increase (or decrease) a given number so as to support an argument, boost a political view, trigger a linked payout or justify a proposed policy or course of action.

The modified metric elevates the case of the proposer above the merely subjective/ rhetorical and lends an ‘objective’ weight to their argument. If, over time, the narrative can be sculpted so that the metric becomes synonymous with something good (or bad), all the better. In this way GDP growth became a proxy for progress – a relation still frequently implied in mainstream discourse.

For those with the requisite level of agency, the rules for the collection of a metric can be changed, often subtly without anyone noticing. Pre-change and post-change numbers can be plotted on the same graph.

The spotlight metric – (i.e. the core metric used at a given time to drive/ justify policy etc) can be changed to suit the convenience of the moment.

The mega-nudge

This traditional art of meretricious metric management has been substantially boosted by the rise of behavioural economics as a ‘discipline’. Nudge units have become super-users for the emerging metrics-scuplting industry. What started as well-intended, often subtle interventions to prompt towards marginal socially-desired behaviour modifications has become a hothouse for heavy handed authoritarian intervention – creating fear as the primary motivating force. Again this is not a new phenomenon, but it has a new face courtesy of social media and the ability of super-digitised communications to facilitate intrusion.

The two ‘industries’ are mutally supporting. As those with power become habituated to nudging the precariat into compliance, they create a series of ‘testimonials’ for the metric-sculpting industry…

…click on the above link to read the rest of the article…

House Price Inflation in CPI is of Course Complete Baloney, but it Accounts for 1/4 of Total CPI

March 13, 2021

House Price Inflation in CPI is of Course Complete Baloney, but it Accounts for 1/4 of Total CPI

With actual house price inflation based on market data, overall CPI would have jumped by 3.7%. Lifting the cover on the deception to keep CPI low.

For most Americans, housing costs are the largest item in their budget, ranging from 30% to 60% of their total monthly spending. In its Consumer Price Index (CPI) for February, released yesterday, the Bureau of Labor Statistics reported that the costs of homeownership (which the BLS calls “Owner’s equivalent rent of residence”) have increased by just 2.0% from a year ago, and that rents (“rent of primary residence”) have increased by 2.0%. They’re the biggest items among the 211 items in the CPI basket and together account for about one-third of overall CPI. They play a huge role in CPI. So…

Rent inflation of 2.0% year-over-year on average across the US might be roughly on target, from what I can see in other rental data. But homeowner’s inflation of just 2.0%, given the skyrocketing home prices? Ludicrous. In its latest release, the Case-Shiller National Home Price index jumped by 10.4%.

This discrepancy between home price increases and the CPI for homeowners – which has for years contributed to understating the overall CPI – is depicted in the chart of the Case-Shiller National Home Price Index (red line) and the CPI for “owner’s equivalent rent of residence” (black line). I set the homeowners CPI at 100 for January 2000 to match the Case-Shiller index, which is set by default at 100 for January 2000. This allows you to see the progression of both indices on the same axis.

The thus corrected CPI increases by 3.7%.

The “owner’s equivalent rent of residence” accounts for 24.2% of CPI. If it had increased by 10.4%, in line with the Case-Shiller index, instead of 2.0%, the overall CPI would have increased by 2.03 percentage points more…

…click on the above link to read the rest of the article…

wolfstreet, wolf richter, cpi, consumer price inflation, house prices, inflation, statistical manipulation, statistics,

How the Unemployment Fiasco in Europe Is Kept out of Official Unemployment Rates

November 16, 2020

How the Unemployment Fiasco in Europe Is Kept out of Official Unemployment Rates

The massive and once-again extended Pandemic-era furlough programs serve their purpose, but…

In Europe, people who are furloughed are paid under government programs via their employers. Many of these programs have been created during the Pandemic. In theory, these people still have jobs. In practice, they’re not working, or are working heavily reduced hours. But they do not count as “unemployed” and are not reflected in the “unemployment” numbers. So throughout the Pandemic, the official unemployment rates barely ticked up, compared to the last crisis, and remain low for the EU era, despite tens of millions of people who’d stopped working due to the lockdowns (chart via Eurostat):

Under these furlough programs, the government pays companies, who in turn pay employees between 60% and 84% of their monthly wage. In some cases, the workers work fewer hours for less pay; in others, they don’t work at all. The workers take a hit to their income but their jobs remain intact, at least for the duration of the program.

The UK adopted a sweeping furlough program at the beginning of its last lockdown. Businesses can claim 80% of a staff member’s regular monthly salary, up to a maximum of £2,500. The money must be passed on to the employee and can also be topped up by the employer.

But the unemployment rate has begun to rise as people come off furlough, and those whose jobs disappeared entered official unemployment. The unemployment rate ticked up to 4.8% in the three months to September, from 4.5% in Q2 and from 3.9% a year earlier, according to the Office for National Statistics (ONS). In London, the unemployment rate surged by 1.2 percentage points from the previous quarter, to 6%, the largest quarterly increase in unemployment since the ONS started tracking the data in 1992.

…click on the above link to read the rest of the article…

Fooled.

April 5, 2020

Fooled.

How Gullible Politicians Promoted the Destruction of the Global Economy and Threw Us into the Abyss of Serfdom

https://www.vox.com/2014/11/10/7157997/everyone-is-selfish-when-it-comes-to-politics

Anyone with some basic knowledge in mathematical modeling who had taken a look at the structure of the “Imperial College”-model would have noted the faults of this approach and its exaggerations. The model’s prognosis that the United Kingdom would have to count with more than half a million deaths and a complete overload of its health system reversedthe British government’s earlier decision to use prudential surveillance and specifically targeted intervention and to shift to the full-control strategy, which required massive intervention into the public and private life of the nation. The leaders of other countries that were somewhat still in doubt jumped on the bandwagon and the march into a tyrannical State was programmed.

It was too late when the authors of the model finally revised their original estimate from 500 thousand to 20 thousand and later on lowered this number even more. The governments had already set into motion their emergency plans.

After declaring the coronavirus a pandemic by the World Health Organization (WHO), agendas that had been prepared years ago were set into motion and the state agencies followed the procedures that were prescribed by the International Health Regulations (IHR) as the international legal instrument that is binding on 196 countries across the globe, including all the Member States of WHO.

Even now, months after the outbreak of the virus, the true size of the threat remains unclear. The quantitative basis is still too small to make a reliable projection.

If the modelers and the responsible government bodies had looked at the basic numbers instead of elaborating an apparently sophisticated model, they would have noticed that there has been no noticeable rise of the death rate.

…click on the above link to read the rest of the article…

Lies, Damn Lies and Coronavirus Statistics

March 5, 2020

LIES, DAMN LIES AND CORONAVIRUS STATISTICS

“Never believe anything in politics until it has been officially denied.” – Otto von Bismarck

‘When it becomes serious, you have to lie.’ – Jean-Claude Juncker, former President of the European Commission from 2014 to 2019

We all lie. Of this there is no doubt. And anyone who tells us otherwise is lying. While there are a billion and one reasons to lie, there is only one purpose…to gain advantage, leverage or to maintain, consolidate or increase power over our children or spouses, other family members, friends or unrelated individuals, groups large and small and even entire nations.

At its most innocuous, a lie may be considered small, kind, even considerate. Often, we tell little ‘white’ lies designed to sooth or placate a loved one or close friend. At its worst, a lie is designed to kill or injure physically, financially, socially or emotionally.

Ultimately, no matter how harmless or devastating it is, a lie is at its root a power play, information warfare employed to disarm, confuse, convince, steal, disable or destroy. We tend to treat lies, especially lies told to others that have an effect far removed from ourselves and our interests, with benign disinterest or even mild amusement. It’s only when the proximity is close or we feel we are targeted do we become righteously indignant and demand justice and restitution.

The dirty little secret is that for far too many of us, we welcome, even beg to be lied to. Not all lies, of course, just those lies and half-truths that enable us to remain safely cocooned within our own inner narrative, our customized worldview or belief system that neatly packages everything into a more easily digestible and comforting ‘reality’.

…click on the above link to read the rest of the article…

Economy Still Falling Off a Cliff – John Williams

December 9, 2019

Economy Still Falling Off a Cliff – John Williams

Economist John Williams says don’t put too much faith in the good employment numbers that came out last week because “It’s not as happy of a picture as it looks.” Williams is the founder of ShadowStats.com. His calculations strip out government accounting gimmicks to give a more accurate picture of economic data. Williams explains, “What the Fed has done with their easing, according to the Fed, is they created a circumstance of sustainable moderate economic growth. So, they don’t need to cut rates anymore. That’s nonsense. You don’t have sustainable moderate growth. For example, look at this last month, industrial production is in a state of collapse. . . . Manufacturing is negative. . . . Oil production is collapsing year to year as oil and gas exploration has plunged. . . . Retail sales have been overstated in employment . . . . That’s going to be revised lower. . . . We have been getting better numbers as of late, and the economy is still falling off a cliff.”

Maybe that explains the Fed’s panic moves with $60 billion a month QE, which it says is not QE, and extreme intervention in the repo market where the Fed routinely pumps out tens of billions of dollars in liquidly a night. Williams says, “The system is not stable, and it probably is insolvent. They blew the system back in 2007. They gave up on the domestic economy to save the banking system. . . . They spent all their resources propping up the banks, and they are still doing the same thing, and it’s still costing us in terms of economic growth.”

So, the Fed is pumping out billions of dollars every month, and yet, the economy keeps sinking. What does this tell Williams? “The system is not operating properly. These are stopgap measures, stopgap liquidity that the Fed is putting into the system.

Economy Still Falling Off a Cliff – John Williams

Here’s The Proof: How The CPI Is Underrepresenting Food Inflation By 40%

May 25, 2019

Here’s The Proof: How The CPI Is Underrepresenting Food Inflation By 40%

The “muzzle” on reported inflation has policymakers and analysts perplexed.

As Joseph Carson, former director of economic research at Alliance Bernstein writes in his follow up to a “New Working Theory on Inflation“, numerous economic explanations and theories have been offered, and policymakers are considering making changes to their operating price-targeting framework. Yet, before any decisions are made policymakers should consider all of the factors that could be keeping a “muzzle” on published inflation.

Here are two:

First, a little more than 20 years ago the Bureau of Labor Statistics (BLS) introduced a number of new measurement techniques in the estimation of consumer inflation (see Boskin Commission). So the current business cycle, which started in 2009, is the second consecutive cycle in which these new procedures have been employed.

Statistical changes have been made to account for product substitution, a greater degree of quality changes in products and services and faster introduction of new outlets or ways in which people shop. The introduction of new variables in the estimation of inflation alters the pattern and at various times the rate of change as well.

Prior to their implementation, analysts and government statisticians estimated that the potential reduction in core inflation from all of these statistical changes would range from one-half to a full percentage point. Yet, all of those estimates were looking backwards and there is no guidance from the statistical agencies of the scale of the reduction in reported inflation after implementation.

Odds are high that the impact on reported inflation varies year to year, with some years at the upper end of range of estimate and others at the lower end.

 …click on the above link to read the rest of the article…

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