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Wednesday, August 03, 2005

What universe are you living in, Bob?

Robert J. Samuelson writes in the Washington Post:
A Big Story, Missed

Look at the numbers. For the past 12 months the consumer price index (CPI) is up only 2.5 percent ...   So-called core inflation -- stripped of volatile food and energy prices -- has behaved even better.
Here is a three-year chart from losangelesgasprices.com:



Gasoline has risen $1.00 from $1.50 to $2.50 in three years, a 66% increase, or 18% per year. And that's just gasoline at the pump. Higher gasoline prices also affect what you pay for other goods since transportation costs are folded into food and other merchandise.

How come the inflation rate is reported to be so low? Samuelson gives a hint with this line: (emp add)
In June new car prices -- after adjustment for quality improvements -- were actually 2.1 percent lower than 10 years earlier, according to the Bureau of Labor Statistics.
That's the controversial "hedonic adjustments" you've heard about. A new computer comes out with double the CPU speed, but has same retail price as a similar model a year ago. The adjustment by the BLS results in a computer at half the price! This didn't happen in the past. Improvements in performance had been assumed to be part of the territory and not something to be "adjusted" for.



5 comments

I find it interesting that Republican administrations have to change traditional calculating methods of economic indicators in order to attempt to hide their inept handling of the economy. During Reagan's reign, the unemployment number refused to budge in response to his policies. Rather than adjust the policies, Reagan adjusted the calculations by arbitrarily dropping long-term unemployed from the count. This produced an instant improvement in the number--though no improvement whatever in the actual level of unemployment.

The "quality adjustment" and holding food and energy prices out of the inflation numbers are similar ploys. Sentient humans know that prices for the vast bulk of their quotidinal purchases are actually rising at a rate much higher than the published inflation rate. But the twisted numbers allow Bush to proclaim inflation is low--and thus allows employers to deny raises to workers.

Unhappily, reality always intrudes. Soon consumer prices will outstrip consumer's spending ability. Shrink consumer spending and the economy starts to slide. And no amount of number fudging will hide that.

Derelict

By Anonymous Anonymous, at 8/03/2005 6:53 AM  

Under Reagan they added the military into the rolls of the employed in order to shave 0.1% off the unemployment number.

By Blogger Quiddity, at 8/03/2005 8:08 AM  

>That's the controversial "hedonic adjustments" you've heard about. A new computer comes out with double the CPU speed, but has same retail price as a similar model a year ago.

Bartkid sez,
So, how does the tripling of the spam I get show up in the rate of inflation?

By Anonymous Anonymous, at 8/03/2005 1:19 PM  

"...stripped of volatile food and energy prices..."
So as long as you don't eat, and walk everywhere, you're OK!
VKW

By Anonymous Anonymous, at 8/03/2005 2:41 PM  

You can call this "fudging the numbers" or "cooking the books", whichever you prefer.

By Anonymous Anonymous, at 8/04/2005 6:36 AM  

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