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If You Don't Eat or Drive... You'll Be Fine.

Written By Brian Hicks

Posted May 14, 2008

The good news is that if you don’t drive or eat… you’re fine. Inflation isn’t a problem for you.

For the rest of us living in world of flawed seasonal adjustments… it’s a problem. It’s a bigger problem to hear that gas prices fell 2% last month.

Huh, you say? You paid much more? So did we. But that’s what happens when gas prices rise 5.6% in April, and the BLS is allowed to statistically readjust, smoothing for seasonal oddities.

My question: Where is BLS getting its gas? And where can I get that same gas?

Sure, the Labor Department reported that CPI jumped 0.2% in April, as compared to expectations for a 0.3% gain, but it’s far from a real number. Even as energy prices spike close to 16% year over year and food prices have surged 5.1%, CPI was only up 0.2%?

“In April, the index for petroleum-based energy fell 1.6%, offsetting a 2.5% increase in the index for energy services,” said the BLS report. “The transportation index declined 0.7% in April, reflecting a 2.0% decrease in the index for gasoline.”

And the market is eating it up.

Inflation is worse than what’s being reported. You know that. I know that. But a Wall Street retail sucker is born every minute. The seasonal adjustment allows economists to remove factors that say more about calendars than economic health.

Historically, gas prices rise in April as we near warmer weather months and summer driving season. Taking that into consideration, the government adjusts its data to reflect the expected rise in gas prices, underscoring trend variations.

And since gas prices did not rise as much as they’ve historically risen in April, the adjustment showed that prices fell in April.

Seasonal Adjustments are described as:

“The seasonal movement of the all-items index and other aggregations are derived by aggregating seasonally adjusted component indexes. Each January the seasonal status of every index series is reevaluated based upon certain statistical criteria. An index could change its seasonal adjustment status from seasonally adjusted to not seasonally adjusted, or vice versa.”

“During mid-February of each year, when January data are released, new seasonally adjusted indexes are published, and new seasonal adjustment factors for these items are available to data users upon request. The CPI uses X-12-ARIMA (auto-regressive integrated moving average) seasonal adjustment software developed by the U.S. Bureau of the Census in 1996. X-12-ARIMA was developed as an improvement over the previously used X-11-ARIMA methodology. X-12-ARIMA uses the X-11 seasonal adjustment method in conjunction with regression-ARIMA modeling for intervention analysis and data extension.”