"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

18 December 2006

Inflation Vanquished? Not Even Using False Stats

In "The Big Picture," Barry Ritzholz's refreshing honesty is shown in this post:

"We have long used this platform to provide a reality check on some of the questionable errata we hear from various entities. It seems everyone has an agenda, and whenever we encounter official BS, from the Government, Wall Street, Mutual Funds, the White House, or the Media, it offends us. The dishonest tendency towards spin, the official salesmanship of mendacity raise our hackles. For those who wish to accept the official data at face value, we have two words for you (no, no those two): Good luck!

Today, we will see what we can do to make sense of each of these since we first addressed them last week. Lets start today with a look at our Inflation-free CPI. For this, we go to John Williams' Shadow Stats:

“The unbelievable $5.4 billion monthly decline in the seasonally-adjusted October trade deficit to $58.9 billion from September's $64.3 billion was more than accounted for by an equally preposterous plunge in reported oil import prices, which was on top of price declines in the prior two months that more than accounted for oil's recent drop. Without the phony oil price decline, the trade deficit would have risen to $64.9 billion...

The seasonally-adjusted November CPI-U was unchanged from October, (down 0.15% unadjusted), following October's 0.49% adjusted monthly drop. Of significance, seasonally-adjusted gasoline fell by 1.6%. In conjunction with the retail sales report, this suggests an understatement of gasoline inflation by 3.9% in November, and a corresponding 0.2% understatement of the CPI, which is about how much the CPI came in below market expectations...Annual inflation for the SGS Alternate Measure was 9.4% in November, up from 8.9% in October.” (emphasis added)

Consider actual surveyed fuel costs, via the Energy Information Administration (EIA):

11/06/06 - 220.0
11/13/06 - 223.2
11/20/06 - 223.9
11/27/06 - 224.6
12/04/06 - 229.7
12/11/06 - 229.3

Maybe my math is rusty, but that doesn't look like energy prices came down in November, does it? Another big WTF: Medical care costs, which have inexplicably fallen 3.7% y/y. Bill King points out that "this is a 'substantial slowing' [BLS] from the perennial 4.2% increase we have seen for the past dozen years . . . And where is the inflation from increasing rents that most everyone sees?"


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