Posts Tagged ‘PCE’

How the US Government Manipulates Inflation Data

The PCE bothered me yesterday.

The Government told us that the PCE core price index for December was 0% – no inflation at all.  I found that to be incredible – as in not credible at all and then Tuscadog asked me how long the Bernank could keep justifying his rampant money printing with fake government data, to which I responded: "I had many derogatory things to say about that but I was literally so sickened by that BS that I couldn’t bring myself to comment on it so I just left it alone but it’s a very sad joke that our government can tell us that there was no inflation in December while the whole planet is falling apart, isn’t it?"  

Fortunately, there was a helpful article in the WSJ by Brett Arends that pointed out that the way the government justifies their low inflation figures is through "substitution and hedonics," a topic expert Government BS detector, Barry Ritholtz had touched on as well.  As Barry says:

Hedonics asks the question: "How much of a product's price increase is a function of "inflation," and how much is quality improvement?" Thus, the entire late 1990's concept of Hedonics is premised upon a flawed assumption: that quality is static.  Hedonics is a variation of the old trick of comparing the present with the past, instead of the present. Measuring quality improvements is a distraction from the real measure of inflation: the purchasing power of a dollar.

 Hedonics opens the door to producing magical results: a lower inflation rate with generally rising prices, a higher growth rate although the economy may be weaker, and a higher productivity number, although productivity would have been declining without the hedonic imputations.

What BS, right?  Well, when I get mad, I do research and when my research uncovers something – I make an electronic puppet show

Forward this to your friends and Congresspeople – lets try to get our government to get real!  


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PCE SHOWS CONTINUING DEFLATION

PCE SHOWS CONTINUING DEFLATION

Courtesy of The Pragmatic Capitalist

From the always informative David Rosenberg:

“For those who have ongoing problem with how the government treats the consumer price index, there is a metric that is tried, tested and true, which is the market-based core PCE price index (the core excludes food and energy).  This metric was released yesterday and it eked a 0.3% QoQ annualized increase (basically flat) which was a record low for this particular data series.  The YoY trend, depicted below, slowed to an 11-year low of 1.2% in Q1 from 1.7% in Q4 and 2.1% a year ago.  The disinflation trend is unmistakable and augurs for income-based investment strategies.”

def PCE SHOWS CONTINUING DEFLATION

Source: Gluskin Sheff 


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