Alert
A L E R T
July 15, 2005
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Shenanigans at the Bureau of Labor Statistics
Energy Prices Used to Manipulate June CPI
"Official" Annual Inflation Should
Have Been 2.9% Instead of 2.5%
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Yesterday morning's report of 0.0% monthly CPI inflation (both seasonally adjusted and unadjusted) appears to have been a political fabrication, which was accomplished through the manipulation of reported energy prices. As a result of no inflation for the month, official annual CPI inflation dipped from 2.8% in May, to 2.5% in June.
Here's where the hanky-panky comes in. Consider, for example, that official (CPI) seasonally-adjusted gasoline prices declined 1.2% in June after a 4.4% plunge in May. Further, June 2005 gasoline prices were up just 6.9% from June 2004. The reported gasoline inflation rates, however, are demonstrably shy of reality. One good surrogate for seasonally-adjusted changes in gasoline prices is seasonally-adjusted retail sales of gas stations, and the June retail sales numbers also were released yesterday morning.
Instead of down 1.2% for June, retail gasoline sales were up 1.9%; instead of down 4.4% in May, sales were down just 0.5% (revised from a 1.6% drop); instead of up 6.9% year-to-year, gasoline sales were up 16.2%! Further, weekly gasoline prices reported by the government's Energy Information Agency (EIA) tend to support the retail sales data, with month-end June prices up 14.9% from the year before. The EIA also shows that unadjusted June prices rose versus May in a range of 0.5% to 5.4%, depending how the numbers are measured, but gasoline prices definitely rose. Unadjusted CPI gasoline fell by 1.4%, and I am not going to try to speculate on how the BLS weekly surveys were handled in order for that to happen.
Accepting, for the moment, that the retail gasoline sales numbers were more accurate than the Bureau of Labor Statistics (BLS) reporting, corrections to just the gasoline price measure in the CPI would have added 0.3% to the combined CPI changes of May and June, and the cumulative effect of catching up on year-to-year change would have boosted annual inflation to 2.9% from yesterday's 2.5% (these calculations back out the impact of an estimated annual 2.5% growth in physical gasoline consumption in the retail sales data).
Partially at fault in the current misstatement of inflation is "Intervention Analysis," described in yesterday's BLS press release as an "enhanced seasonal adjustment procedure." According to the BLS, "For the fuel oil, utility (piped) gas, motor fuels [primarily gasoline], and educational books and supply indexes, the 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."
What is at work here, though, likely involves more than screwy seasonal factors and gimmicked methodologies. It has not been unusual in recent administrations for "enhanced" inflation or other economic reporting to be used to help counter sagging approval ratings. The scope and nature of yesterday's misreporting looks like outright political manipulation!
On a more startling note, the July 11th EIA report shows gasoline prices up 41.1% from the year before. If that holds, then gasoline alone would cause the monthly July CPI to jump a seasonally-adjusted 1.2%, with annual inflation rising to 3.8%. Thank goodness for intervention analysis!
These issues will be explored further in August's SGS.
August's Shadow Government Statistics is scheduled for release on Wednesday, August 10, 2005. Its posting, as well as any other interim alerts, will be advised immediately by e-mail.