Inflation Rises — But no one notices?

In October 2006 the annual inflation rate (CPI-U) was 1.31% and it was 50% higher at 1.97% in November. Yet on the same day the data was released Yahoo Financial News reported in an article entitled “Stocks Rise on Inflation Data”that Inflation was flat.

Their exact words were “The Labor Department said consumer prices were flat in November rather than up 0.2 percent as analysts had expected. Core inflation, which excludes volatile food and energy costs, was also unchanged.”

How can a 50% increase in the inflation rate be considered “flat”?

Well, interestingly the government publishes several sets of numbers. The first is the numbers that we use (and are most commonly used). This is the traditional “Inflation Rate” or CPI-U (Consumer Price Index for all Urban Consumers).

The Bureau of Labor Statistics also publishes a less commonly quoted  CPI-W  which is the Consumer Price Index for Urban Wage Earners and Clerical Workers.  The basic component mix is slightly different.

In addition to these two traditional measurements of the Consumer Price Index the BLS also publishes two other numbers that have been massaged and twisted. They are the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) and a Seasonally adjusted CPI-U.

It seems that the news media focused on the Seasonally adjusted numbers because the report from the Bureau of Labor Statistics says, “On a Seasonally Adjusted basis the CPI-U was unchanged in November.”

Seasonal adjustment sounds good in theory because at certain times of the year inflation is worse than at others but in reality I would rather take my data straight and come to my own conclusions rather than have the BLS and the news media cover up a 50% increase under the guise of “seasonal adjustment”.

The Table below shows the individual monthly components of the Annual Inflation Rate.

Month Monthly Inflation Rate
January 2005 0.21%
February 2005 0.58%
March 2005 0.78%
April 2005 0.67%
May 2005 -0.10%
June 2005 0.05%
July 2005 0.46%
August 2005 0.51%
September 2005 1.22%
October 2005 0.20%
November 2005 -0.80%
December 2005 -0.40%
January 2006 0.76%
February 2006 0.20%
March 2006 0.55%
April 2006 0.85%
May 2006 0.50%
June 2006 0.20%
July 2006 0.30%
August 2006 0.20
September 2006 -0.49%
October 2006 -0.54%
November 2006 -0.15%



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