Government Statistics at it Again: They Adjusted Your Recession from Hell to Heaven!
I tried my best to give the BLS the benefit of the doubt when it did not massage the inflation rate in its last CPI report lower for January than December as I thought it would. I did, that is, until I dug deeper into what the BLS did do. Now government is at it again. And it’s worse this time!
The first thing I noticed with January’s CPI report was that the BLS did not reduce the weight of housing in its calculations as I thought it would. Since I believe reported housing prices will be catching up with real-market changes in the months ahead until the Fed crashes the housing market (see “Expect the Bureau of Lying Statistics to Tell a Whopper with Thursday’s CPI“), I thought the BLS would reduce the weight of housing as a way of holding down the official CPI inflation rate. Instead, it actually increased the weight of housing! That didn’t look, at first, like a move by the BLS to reduce overall reported inflation (see “How I Struck Out and Hit a Grand Slam with the Same Swing“).
But then I read that the BLS believes housing prices have peaked, and I noticed that the housing inflation rate actually did drop in January even with the increase in how housing is now weighed. So, of course, the BLS increased housing’s weight since they saw the rate would still slip back down a notch even with the increase in weight. That way housing’s decline, which they believe is starting, will help pull down CPI in the months ahead. So, that was a smooth move on their part for January based on what they expect to happen.
It will, however, backfire on them if I’m right about where housing is about to go as past housing price increases slowly work their way into the CPI survey due to the delays I’ve argued are built in. If the BLS is wrong about how housing will pass through via “Owner Estimated Rent,” CPI will be made worse in the months ahead by their change in weight since their own policy only allows them to change weights every two years … unless they change their policy, too.
At the same time, they reduced the weight of energy a lot as if energy somehow matters less to all of us now that it costs more for all of us. Even with that reduction, energy turned out to be a big driver in the new CPI rate; so, imagine how much worse official inflation would have been in January if they hadn’t reduced the weight of energy.
I came to realize that the only reason they didn’t manage to get the annual CPI rate of inflation down from December to January with all their category re-weighting was that they likely couldn’t. They reweighed last month’s worst areas of inflation downward as much as they could reasonably argue for, and b
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