Consumer prices in record decline

[Burma Jones]

Source: CNN

NEW YORK (CNNMoney.com) -- Consumer prices fell by a record amount in October, in another worrisome sign about the contracting economy, the government reported Wednesday.

The Consumer Price Index, a key inflation reading, fell 1% last month, according to the Labor Department. That was much weaker than September's flat reading and exceeded the 0.8% decline a consensus of economists surveyed by Briefing.com had forecast.

The closely watched core CPI, which strips out volatile food and energy prices, fell 0.1%. Economists had expected a 0.1% rise after a 0.1% jump in September. Core CPI posted a 12-month change of 2.2%, down from a 2.5% rise on that basis from the month before.

Read more: http://money.cnn.com/2008/11/19/news/economy/cpi/index.htm?postversion=2008111908

[hobbit709]

1. They sure haven't gone down at the grocery

I don't buy anew appliance every month but I sure buy groceries all the time. THAT is my CPI.

[Winterblues]

25. It said leaving out food and energy prices

I think they are talking about gameboys and such..

[Crazy Dave]

2. It would be nice if heating fuel prices would decline this winter

But I'll bet they'll increase the price giving consumers even less money to spend.

[maseman]

11. Actually I just got some mail

getting me to lock into a $9.99 MCF for my natural gas for the next year. That is down from about $13.99 last year which is a HUGE difference month to month.

I heat with wood but most people do not have that luxury.

[durablend]

26. Propane is still pricey

We got hit with $5.05 a gallon less than a month ago, and according to a neighbor who uses less annually (but has the same company), they were asking $5.45 a gallon. We're hoping we can ditch them for another company.

[Roland99]

3. yay! No inflation!!

:sarcasm:


But, hey, maybe the Fed will go ahead and cut rates to ZERO! After all, they tamed the inflation beast and we all know how much deflation is welcomed.


:banghead:

[KeepItReal]

4. sounds like good news for consumers who don't need food or energy

was the "consumer price index" always calculated like that, or is it a bush & co creation?

[Zynx]

6. Read the article and you will get your answer.

This is one of the biggest lies told here. The headline number is always all consumer prices. There is a separate ex-food and energy number that economists look at to see what non-commodity inflation is.

[Lasher]

14. Core consumer prices exclude food and energy but that's not the whole story.

Core inflation is derived from the Personal Consumption Expenditures Index. It is important to know if a cited inflation statistic reflects PCE or the more appropriate Consumer Price Index. The CPI-U (CPI for All Urban Consumers) is the popularly followed inflation measure currently reported in the financial media, although core inflation is sometimes cited by deceitful pundits.

That's just getting started. The PCE notwithstanding, CPI inflation calculations have been manipulated since 1981 to artificially reduce reported rates.



The SGS Alternate above reflects the CPI as if it were calculated using the methodologies in place in 1980. Inflation as reported by the CPI today is understated by roughly 7% per year.

http://www.shadowstats.com/article/56

[Zynx]

32. The PCE is based on a decent theory, though I question its application.

The idea that people shift expenditures from more to less expensive goods and substitute is a sound one. It also deals with the problem of new products not being accounted for in traditional measures of CPI. However, I think this very often understates inflation because they overestimate this phenomenon.

[Lasher]

34. You are right, inflation rate understatement results when these changes are employed.

And the distortion is intentional.

But we need to be very careful here with our labels if we hope to overcome confusion. PCE is the index that does not include costs for food, and for energy such as gasoline. CPI includes these costs, but it has been altered since 1981 by distortions such as the Boskin/Greenspan 'let them eat hamburger' fraud and the almost laughable adjustments for hedonics.

It is actually the CPI modifications that I find most sinister. PCE can be confusing to some but it is not so much a tangled web.

[pinqy]

37. The problem is...

that as far as I can tell, all Mr. Williams does is tack on 7% each year. And no one seems to know how he derives this figure. Especially since when research was actually done the average difference was less than 0.5% Consumer Price Index research series using current methods, 1978-98

BLS has responded to the false claims of Mr. Williams (such as his outright lie about substituting hamburger for steak and his false statements about the use of hedonics) and others in the Monthly Labor Review: Addressing misconceptions
about the Consumer Price Index>

[Lasher]

40. Williams makes clear how he derives his figures.

As I advised upthread, SGS Alternate reflects the CPI as if it were calculated using the BLS methodologies in place in 1980. And Williams noted at the beginning of the article to which I linked:

The source for most of the information in this installment is the Bureau of Labor Statistics, which generally has been very open about its methodologies and changes to same. The BLS Web site: www.bls.gov contains descriptions of the CPI and its related methodologies. Other sources include my own analyses of the CPI data and methodological changes over the last 30 years as well as interviews with individuals involved in inflation reporting.

The 1999 Consumer Price Index research series article was discussed in the October 2005 edition of the SGS Newsletter. An effective rebuttal was set forth therein.

On September 10 this year, Williams published a Response to the August 2008 BLS Article on CPI Misconceptions.

In the BLS article, Greenlees and McClelland attack the SGS 'hamburgers for steak' argument. It is clear that they prefer to think of this as the geometric mean of substitution. While they admit substitution does occur, they say steak is not actually replaced with hamburger in any of the BLS models. I'll take them at their word on this, but their position falters beyond that, since their main justification for substitution seems to be that everybody does it.

Their defense of hedonics is also unconvincing. They say that the purpose of the CPI is misunderstood. I agree but if I wanted to blame someone for that I would look first to the BLS. While it is legitimate to discuss the CPI's intented purposes and goals, it was disappointing to see they did not mention the ramifications on programs such as Social Security when reported inflation rates are artificially lowered. They didn't deny hedonics has an impact on CPI, they just wanted to argue about how much.

Thank you for bringing these challenges to my attention. Having reflected on them I am not prepared to dismiss Williams' work as false claims and lies by someone who has not actually done research.

[pinqy]

41. Where?

All he says is that he bases it on the pre-1980 methodology, but where are the details? What's his sample? Where's the math? None of his actual methodology is available on his website. His explanations are very vague.

And I followed your link...he does not rebutt the Current Series work or explain any differences in his methodology.

In his response to Greenlees and McClellend, his defense of the false claim of hamburger substitution is that other people said it and he just repeated it. That's incredibly sloppy. And no their defense of geo-means is not just that everyone else does it, but that a Laspeyres index gives the Maximum increase. Which is not realistic.

And hedonics does not artificially lower...it can raise or lower depending on actual changes. What Mr. Williams wants to do is ignore that a completely different product is being measured. Regardless of your individual utility, a flat screen tv is not the same as a cathode ray tv and to ignore that when measuring price change is ridiculous.

Ramifications of the CPI on policy issues is irrelevent. Changes to the CPI are based on methodological concerns. Mr. Williams fails, anywhere, to state why he thinks his version is more statistically sound.

And as for research, I've actually worked on the CPI, and have spent many years discussing the methodology etc with other economists.

[Lasher]

43. Well you haven't said much in the past 3 years but you're on a roll now.

You are interested in more detail than I. OK let's communicate, and please be patient with my repitition.

Williams says, "The CPI on the Alternate Data Series tab here, reflects the CPI as if it were calculated using the methodologies in place in 1980." This seems simple enough and I can relate to it without retroactively changing my career specialty from engineering to economics. Just get the 1980 method and use it on source data from, let's say, 2007 and 2008. That's generally what Williams said he did and the results he produced are the source of this controversy.

But you raise a concern, in that none of the the details for this calculation are to be found on his website. You must by now have noticed you can download an Excel spreadsheet, but only if you pay for a subscription. This was not a problem for me because Williams said (as I already cited), "The source for most of the information in this installment is the Bureau of Labor Statistics, which generally has been very open about its methodologies and changes to same. The BLS Web site: www.bls.gov contains descriptions of the CPI and its related methodologies."

That's as far as I took it, but let me put it to you this way: Is the 1980 CPI methodology available at the BLS website as he infers? If so, it could be used to go up against 2007 and 2008 source data, which should also be there. Data similar to the SGS alternative should result. If the information is found to be unavailable at BLS, however, then I would share your skepticism since a basic part of his claim to transparency would then be brought into serious question.

[Hestia]

8. The current CPI is a Clinton administration creation

[ProfessorGAC]

10. Not A Creation. A Modification

The Clinton administration altered the contents of the CPI market basket. They did not take out energy and food. It's been that way since the 1950's. I don't approve of that, but that's what it was. In an earlier post on this thread, i explain why i don't agree that it should be that way.
The Professor

[Lasher]

16. Right, food and energy were excluded from the Personal Consumption Expenditures Index

That's core inflation as opposed to CPI.

Having been enriched in part by Shadow Government Statistics, I opined a little on the subject upthread. One important point is that in any historical comparison the results must be derived by the same methodology. In the SGS example 1980 calculations were used throughout.

This is important in several respects, not the least of which is our collective misunderstanding of current rates compared to those of earlier times. One could argue, for example, that current inflation is lower today than it was in 1990 when in fact it is about 50% higher.

[ProfessorGAC]

9. It's Always Been That Way. But, . . .

. . .it's ridiculous that it still is. The "reason" used to be that energy was contained in the cost of other goods and services, (only somewhat true) and that food and energy prices were too volatile to accurately measure.

Well, in the information age, compiling the data is so easy, that NO amount of volatility would cause the data to be imprecise enough to substantially change the figures in a large dataset.

The real excuse is that the models on which these folks rely are old, and they're too lazy to revise them appropriately to include all normal expenses, and too lazy to add items to the CPI market basket. This despite that fact that over a dozen such models have been published in academic journals since 1990. (At the risk of self-congratulating, one of them is mine, from 1998.) So, all they'd need to do is test those existing models, decide which one was best and easiest to use, and start using it.
The Professor

[pinqy]

12. What on Earth are you talking about?

The motor fuel category has data going back to 1935 and Household Energy goes back to 1967. Food goes back to 1913. I've never heard anyone claim that they weren't able to accurately measure them...the seperate figure for "Core-CPI" excludes food and energy because they're so volatile they distort the long run picture of inflation. Your claim doesn't even make sense...if food and energy were to volatile to accurately measure, then why have they been included in the main index for so long?

The models are revised pretty frequently, and 25% of item and outlet samples are updated every year.
The CPI was started in 1913 and has had 6 major revisions since then, the most recent being 1998. Since 1998 there have been several other changes including revising the weights every 2 years.

[ProfessorGAC]

27. Wrong

We were talking about a specific index. Try to catch up. Or learn to read for comprehension.
GAC

[pinqy]

36. Perhaps you should learn what you're talking about

"The CPI" refers to the "CPI-U all items" 99% of the time. That's what the OP was about, that's the main published number. If you meant to refer to the "CPI-U all items less food and energy," which is commonly referred to as "Core CPI," you should have said so. But in any case, your claim that "The "reason" used to be that energy was contained in the cost of other goods and services, (only somewhat true) and that food and energy prices were too volatile to accurately measure." is completely false in that "Energy" as a category has data going back to 1957, and "Food" goes back to 1913. "All Items less food and energy" goes back to 1957 as well. So clearly it's NOT a problem of food or energy not being "precise enough" since they are included in the CPI. The special index of "less food and energy" is one of several special subsets of the CPI (others include "less medical care," "less shelter" "less food" "less energy" "commodities" "commodities less food" etc). These special indexes give a different picture, and the reason the FED used the CPI-U less food and energy was solely a volatility issue. Never was it a BLS problem. But please, feel free to provide any cites or documentation. I won't hold my breath.

[RUMMYisFROSTED]

39. Reagan.

[pinqy]

5. Breaking it down...

...the seasonally adjusted numbers are:
All items: -1%
Food and beverages: +.3%
Housing: no change
Apparel: -1%
Transportation: -5.4%
Medical care: +.2%
Recreation: +.1%
Education and communication: +.2%
other goods and services: +.3%
Energy: -8.6%

So it seems that the sharp decrease in fuel prices coupled with the auto industry problems are what pushed the overall CPI down....and the drop in transportation dropped the core price down.

The CPI-W shows an even greater decrease (-1.2%) mostly because transportation is weighted more than in the CPI-U

Source: CPI News Release

[fasttense]

7. Let's look at everything that has gone down in price -

Housing, gas, stocks and all the ponzi scheme derivatives, now the CPI.

In the 1st Republicon Great Depression the price of everything did not go down immediately. Some prices dropped quickly, some prices took a long time to drop. For the average person, credit remained very difficult to obtain for the duration of the Republicon Great Depression.

So now that prices are falling, I say we can safely call this -

The 2nd Republicon Great Depression.

[msongs]

13. lobster wholesale $2.50/lb, retails for $48 a pound. who is gouging who? nt

[Marrah_G]

15. err 48 per pound where? They are running 3.99 to 4.99 a pound here

Lowest price in a really long time.

[Skink]

17. Beerflation is still up.

[customerserviceguy]

18. That should change

as the 2008 hop harvest makes its way into bottles, cans, and kegs later in the year. The stuff on the shelves right now was made with expensive hops that quadrupled in prices this last year, as brewers scrambled to lock up any available hops they could find on the open market.

I just picked up a nice 22 oz bottle of Sierra Nevada's Wet Hop Ale, made with the 2008 crop for $3.99 at my favorite beer store. Most "bombers" go for $6 and up over here in NY.

[Idealism]

19. Consumer Prices Fall by Record Amount

Source: New York Times

In another sign that the struggling economy continues to slow, consumer prices tumbled by a record amount in October, carried lower by skidding energy and transportation prices.

The Consumer Price Index, a key measure of how much Americans spend on groceries, clothing, entertainment and other goods and services, fell by 1 percent in October compared with prices in the previous month, the Labor Department reported Wednesday morning. It was the steepest single-month drop in the 61-year history of the pricing survey.

“It’s funny that just a few months ago everyone was wringing their hands over inflation,” said Nariman Behravesh, chief economist at Global Insights. “It’s gone. It’s over.”

Energy prices led the decline, falling 8.6 percent in October as the price of gasoline continued its steady slide from highs of more than $4 a gallon. The costs of transportation fell 5.4 percent while clothing prices fell 1 percent.

“The dominant and common factor is the plunge in gasoline prices, which drove the bulk of the weakness,” said James O’Sullivan, United States economist at UBS. “You’re going to see huge declines in a month’s time in the November reports. That’s the biggest part of the weakness.”


Read more: http://www.nytimes.com/2008/11/20/business/economy/20econ.html?_r=1&hp

---

More bad signs of of the future; holiday season will be miserable for retailers across the board.

[stubtoe]

20. A list of some upcoming store closures (by Jan. 09):

SisterlySavings.net

From the above site at the link:

Circuit City stores… most recent

Ann Taylor- 117 stores nationwide are to be shuttered

Lane Bryant,, Fashion Bug ,and Catherine’s to close 150 store nationwide

Eddie Bauer to close stores 27 stores and more after January

Cache will close all stores

Talbots closing down all stores

J. Jill closing all stores

GAP closing 85 stores

Footlocker closing 140 stores more to close after January Wickes Furniture closing down

Levitz closing down remaining stores

Bombay closing remaining stores

Zales closing down 82 stores and 105 after January.

Whitehall closing all stores

Piercing Pagoda closing all stores

Disney closing 98 stores and will close more after January.

Home Depot closing 15 stores 1 in NJ (New Brunswick)

Macys to close 9 stores after January

Linens and Things closing all stores

Movie Galley Closing all stores

Pacific Sunware closing stores

Pep Boys Closing 33 stores

Sprint/ Nextel closing 133 stores

JC Penney closing a number of stores after January

Ethan Allen closing down 12 stores.

Wilson Leather closing down all stores

Sharper Image closing down all stores

K B Toys closing 356 stores

Loews to close down some stores

Dillard’s to close some stores.

[DarthDem]

28. Some Blatant Misinformation There

. . . most notably regarding Ann Taylor, Talbots, and Circuit City. Accurate info here:

http://www.snopes.com/politics/business/storeclosings.asp

[stubtoe]

29. Thanks for the link -

there were some comments on the site I referenced that disagreed with some of the info in that list, so I had some questions as well.

Still, it looks grim out there. If you get a gift card, SPEND IT immediately, do not pass go, etc.
-s

[amandabeech]

35. ***Heart Attack Averted***

Ann Taylor and Talbots get my "business casual" dollars when they have sales.

I have very little luck at Macy's and the upscale places are too chic or too pricey, even on sale. Well, maybe Lord & Taylor VERY on sale.

[MadinMo]

21. Aside from cheaper gasoline and propane, I haven't seen lower prices.

Groceries are certainly still high and seem like they are getting higher. I took my 15 year old daughter to the mall a couple of weeks ago to spend some money that was burning a hole in her pocket and there were TONS of sales (Veterans Day weekend) but things were still high. Have any of the rest of you seen lower prices?

[Idealism]

22. Food costs are high simply due to inflation

and more people on earth to feed, year after year. Add into account that most of our food supply is grown in other countries, and you can understand why our dollar doesn't go as far as it used to. Thank Bush for that $10+ trillion debt we gots goin' on

[louis-t]

24. The worse the economy, the more yellow stickers at Kroger.

Lots of sale items. Not just 20 cents off either. 2 for 1, 10 for $10.

[CountAllVotes]

42. I haven't seen lower prices on things I need

the only thing that has gone down is gasoline. I buy about 10 gallons of it a month tops.

Otherwise, prices have NOT gone down on other items best I can tell.

:dem: :kick:

[Javaman]

23. “It’s funny that just a few months ago everyone was wringing their hands over inflation,”

yeah, real funny.

[kestrel91316]

30. Prices for WHAT? Nothing but gas is going down, but I can't afford to

spend or do anything so I don't drive anywhere but to work and back home.

[madville]

31. 1%

So a TV that cost $500 now costs $495, big deal. So according to some people it's bad when prices go up but it's also bad when prices go down, so I guess it's always bad no matter what.

[Odin2005]

33. Here comes deflation, folks...

Then we can be sure we are in a depression. :scared:

[dreamnightwind]

38. not so fast perhaps

I dunno. I'm worried about the same thing, but if you look at those numbers, it's mostly a reflection of the huge drop in energy costs. That's a freakish event with a whole lot of factors involved.

Due in part to commodity speculation, oil prices were insanely high. Some of it was also due to supply and demand, I don't know how much of it. But when oil got so pricey, people stopped going anywhere, and demand dropped off. Also with everyone's housing values declining, they're spending less on everything, which is the kind of economic contraction I think of as sliding into a depression. But the oil price drop, which is the main cause of the recent drop in the price index, owes at least as much to the fact that oil was way over-priced as it does to a contracting economy.

Obviously everything is tight now and consumer demand is low, and I do believe things are headed downward, but the recent declining index data may mostly be about the bursting of artificially high oil prices.