Reply #37: A little info on the CPI-U >>>>> (iow, inflation is REALLY 11.8%!!!) [View All]

[Roland99]

http://www.shadowstats.com/cgi-bin/sgs/article/id=343

There now are three major CPI measures published by the BLS, CPI for All Urban Consumers (CPI-U), CPI for Urban Wage Earners and Clerical Workers (CPI-W) and the Chained CPI-U (C-CPI-U). The CPI-U is the popularly followed inflation measure reported in the financial media. It was introduced in 1978 as a more-broadly-based version of the then existing CPI, which was renamed CPI-W. The CPI-W is used in calculating Social Security benefits. These two series tend to move together and are based on frequent price sampling, which is supposed to yield something close to an average monthly price measure by component.

The C-CPI-U was introduced during the second Bush Administration as an alternate CPI measure. Unlike the theoretical approximation of geometric weighting to a variable, substitution-prone market basket, the C-CPI-U is a direct measure of the substitution effect. The difference in reporting is that August 2006 year-to-year inflation rates for the CPI-U and the C-CPI-U were 3.8% and 3.4%, respectively. Hence current inflation still has a 0.4% notch to be taken out of it through methodological manipulation. The C-CPI-U would not have been introduced unless there were plans to replace the current series, eventually.

Traditional inflation rates can be estimated by adding 7.0% to the CPI-U annual growth rate (3.8% +7.0% = 10.8% as of August 2006) or by adding 7.4% to the C-CPI-U rate (3.4% + 7.4% = 10.8% as of August 2006). Graphs of alternate CPI measures can be found as follows. The CPI adjusted solely for the impact of the shift to geometric weighting is shown in the graph on the home page of www.shadowstats.com. The CPI adjusted for both the geometric weighting and earlier methodological changes is shown on the Alternate Data page, which is available as a tab at the top of the home page.

So, if CPI-U is at a 4.8% annual clip, that means the traditional inflation rate is really 11.8%!!!


edit: oops...had the wrong measure in mind. Too many letters. ;)