>Cool! There's no inflation! And if anything goes up then we call it a
>"sharp movement" and it doesn't count.
>
>http://nypostonline.com/business/25545.htm
>
>Doug, are things really *this* bad at the BLS? This Crudele guy tends to
>exaggerate;is it true that without those "ex-anything that goes up"
>adjustments inflation would have been an annualized 12% last month?
Sorry to take so long to respond to this, but I'm a bit behind.
Crudele strikes me as extremely unreliable. Here's what he said in that column:
>Buried deep in a footnote in the CPI report, under a section about
>seasonal adjustments, is this statement:
>
>"Effective with the calculation of the seasonal factors for 1990,
>the BLS has used an enhanced seasonal adjustment procedure called
>Intervention Analysis Seasonal Adjustment for the CPI series ...?.
>For the fuel oil and the motor fuels indexes, this procedure was
>used (in January) to offset the effects that extreme price
>volatility would otherwise have had on the estimates of seasonal
>adjusted data for those series."
>
>If this footnote really means what it seems to say, this disclosure
>is astounding. Washington has been assuring us that that inflation
>is under control, but it has been reducing -- and maybe even
>eliminating -- the impact of the rising price of oil in its
>calculations.
>
>That's like leaving the rain out of a weather report. Or the
>visitor's runs out of a box score.
>
>If this is what BLS is doing, it would produce a meaningless number.
Here's the BLS's full note, from the release <ftp://146.142.4.23/pub/news.release/cpi.txt>:
>Effective with the calculation of the seasonal factors for 1990, the
>Bureau of Labor Statistics has used an enhanced seasonal adjustment
>procedure called Intervention Analysis Seasonal Adjustment for some
>CPI series. Intervention Analysis Seasonal Adjustment allows for
>better estimates of seasonally adjusted data. Extreme values and/or
>sharp movements which might distort the seasonal pattern are
>estimated and removed from the data prior to calculation of seasonal
>factors. Beginning with the calculation of seasonal factors for
>1996, X-12-ARIMA software was used for Intervention Analysis
>Seasonal Adjustment.
>
>For the fuel oil and the motor fuels indexes, this procedure was
>used to offset the effects that extreme price volatility would
>otherwise have had on the estimates of seasonally adjusted data for
>those series. For the breakfast cereal index, the procedure was used
>to offset the effects of price-cutting among cereal manufacturers.
>For the educational books and supplies index, the procedure was used
>to account for greater than normal sale prices on educational
>reference books. For some alcoholic beverage series, Intervention
>Analysis Seasonal Adjustment was used to offset the effects of
>increased brewer's costs along with increased demand for specialty
>beers. For the nonalcoholic beverages index, the procedure was used
>to offset the effects of a large increase in coffee prices due to
>adverse weather. For the fats and oils series, the procedure was
>used to account for lower domestic butter stocks, lower cold storage
>supplies, and anticipation of a bumper soybean crop. For the new
>trucks index, the procedure was applied to account for loyalty
>rebates offered to customers by American automakers. For the water
>and sewerage maintenance index, the procedure was used to account
>for a data collection anomaly.
I have a query into the BLS contact on this, but I read this statement to mean that extraordinary movements are stripped out before calculating seasonal adjustment factors, since those extraordinary movements are nonseasonal. So the technique does nothing to disguise sharp price movements - it only prevents them from being incorporated into the SA factors and so carried into subsequent years.
As it is, SA energy prices were up 1% in January - a 12.7% annual rate; that's hardly a small number.
Doug