Artificially Low Energy and Food Inflation Add to Downside CPI Distortion. This morning’s (March 14th) release of "unchanged" February CPI was as close to overt data manipulation from the Bureau of Labor Statistics (BLS) as you get. I even heard a news reporter on radio asking, "How’d they come up with that?" 

How they (the BLS) came up with that was through the use of unbelievably low food and energy inflation. For example, the data show a not-seasonally-adjusted 0.6% decline in gasoline prices for February. The data are supposed to be reflective of a monthly average, not a point in time as used in the Producer Price Index (PPI). Yet, calculating the change in monthly average national gasoline prices, all grades, based on data published by the Depart of Energy shows a monthly gain of 0.5%. The difference with that number, alone, would have brought in the seasonally-adjusted CPI-U at a 0.3% monthly gain, which was the consensus forecast.

What could be the motivation for gimmicking the CPI beyond the usual distortions? With the markets in turmoil, gold pushing $1,000, the U.S. dollar tumbling and the Fed about to ease again, all are helped a little bit by the false data.

These numbers were well planned and did reflect the unusual patterns indicated in yesterday’s Flash Update on the retail sales. Retail sales for February remain negative both month-to-month and year-to-year, net of the gimmicked inflation.

With the preceding as background, here are the hard numbers. The BLS reported that the seasonally-adjusted February CPI-U (I.6) was "virtually unchanged" with a gain of 0.03% (up 0.29% unadjusted) +/- 0.12%, versus an increase of 0.39% in January (0.50% unadjusted). February’s annual CPI inflation eased to 4.03% from January’s 4.28%.

Year-to-year annual inflation will resume its upturn in March 2008 reporting, dependent on the seasonally-adjusted monthly gain exceeding the 0.46% monthly increase seen in March 2007. The difference would directly add to or subtract from February’s annual inflation rate of 4.03%.

Annual inflation for the Chain Weighted CPI-U (C-CPI-U) — the substitution-based series that increasingly gets touted by the manipulators and inflation apologists as the replacement for the CPI-U — was 3.69% in February, down from 3.91% in January.

Adjusted to pre-Clinton (1990) methodology, annual CPI growth was about 7.3% in February, down from 7.6% in January. The SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was roughly 11.6% in February versus 11.8% in January.

Continuing market turmoil and systemic shocks remain within the general outlook, which is unchanged. The next communication should be the full newsletter, due for posting on Monday, March 17th or before. More complete analyses follow then.