The New CPI: A Wilderness of Mirrors

Issue XLIX

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Today’s Bullets:

• Current CPI

• The New CPI

• The Fed’s Timing

• A Wilderness of Mirrors

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Inspirational Tweet:

Rudy Havenstein, nothing except everything. @RudyHavenstein

"Every single adjustment to CPI calculation has ended up with a lower CPI. No one has ever adjusted it and come up with a higher number. So, we, we know what the adjustments are there for." - Grant Williams

financialexpress.comUS CPI calculation to change for January inflation data | The Financial ExpressThe Bureau of Labor Statistics will change the method of calculation of inflation data from January 2023.

Ah yes, another (fiscal) quarter, another change to the way the Bureau of Labor Statistics (BLS) calculates the ever-morphing and all-too-important CPI reading.

Is the government intent on hiding reality and confusing consumers, as Rudy suggest here? Or are they just hard at work, pinpointing the most accurate ways to read actual inflation in America? 😆

Okay, okay, let’s answer those and more, nice and easy, in this week’s Informationist, shall we?

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Ok, onto the good stuff!

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🧐 Current CPI

First, for those of you who are new to this whole Fed and macro game, or if you need a little refresher, let’s quickly review CPI.

The Consumer Price Index, also known as the CPI, is the benchmark measure for U.S. inflation as calculated by the Bureau of Labor Statistics (Sometimes referred to as simply the BLS).

You may have noticed some, er, recent controversy about the accuracy of the CPI and whether the BLS is understating inflation. People ask every time a new CPI reading is released: how can the prices of groceries, cars, houses, be so inflated, yet the CPI rises only a fraction of that?

Good questions, and ones I answered in an Informationist newsletter a number of months ago. If you’re interested in digging in deeper on CPI, you can find that here:

CPI and How the Measure of Inflation is 'Inconsistent'

For the TL;DR crowd: the CPI is a basket of goods and services that is priced from period to period (usually quoted month to month and year to year). As these goods and services rise and fall in price, the average price of the basket rises and falls as well. The percentage at which the basket rises and falls is called the CPI, and this can be positive or negative, depending on whether prices are rising or falling.

OK, but is it accurate?