2008 CPI = 3.8% or 0.1% ?
There are several different ways to calculate annual consumer inflation.
The two most common ways BLS officials do this is to compare a) December to December, calendar year data; b) annual average CPI for 2008 versus average for 2007.
Most years, the variations between these approaches is quite minor. However, given the volatility we have seen in inflation data — most especially food, energy and commodity prices — this year, the two approaches produce very different results:
A mathematical oddity in Friday’s consumer price index means you can claim with some statistical backing that inflation last year was either 0.1% or 3.8%.
Measured on a December to December – or calendar year – basis, the consumer price index only grew 0.1% in 2008, according to Labor Department figures, the smallest gain in over 50 years and well below the 4.1% gain in 2007. But when the annual average of the CPI for all of 2008 is compared to the average for 2007, the increase was much higher, 3.8%. That was actually up from 2007’s rate. . . .
When it comes to assessing near-term trends, economists prefer calendar-year changes, which is why Wall Street research notes universally mentioned the 0.1% figure, and not the 3.8% one. The two series should even out over time, and in 2009 the calendar-year increase will probably be much higher than the average annual increase given the low base that the CPI index is starting at this year
Labor Department analysts noted the large differences were quite unusual: The two series usually line up exactly; when they don’t, the differences are only a few tenths of a percentage point.
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Source:
Did Inflation Really Dry Up Last Year?
Brian Blackstone
Real Time Economics, January 16, 2009, 3:02 pm
http://blogs.wsj.com/economics/2009/01/16/did-inflation-really-dry-up-last-year/
January 19th, 2009 at 1:07 pm
Isn’t the CPI figure, 3.8%, what everything (SS, I-bonds, TIPS,etc.) is indexed to?
January 19th, 2009 at 1:33 pm
If the CPI is in fact 3.8% what are we in for moving forward with all that money sloshing around. If this is the case, while deflation seems to be the news for the moment, it seems like some of those calls for future hyperinflation aren’t that far off the mark.
January 19th, 2009 at 1:36 pm
Just comparing one month a year apart isn’t very meaningful, since with noisy data, you could get almost any number irrespective of the overarching trend depending on how the two months fluctuated. Taking an average of the years is better, but not great. What not do it cumulatively by quarter ? e.g. $100 Jan 1 is $103 April 1 (3% quarterly inflation – huge I know) , then $104 July 1 (1% quarterly rise), etc. Things will make sense even with big fluctuations, rather than making sense only when fluctuations are low.
January 19th, 2009 at 1:45 pm
Too bad I couldn’t have bought all of my life essentials in December 2008, ex post facto.
Chuck
January 19th, 2009 at 1:48 pm
Enjoy the last day of the Bush years, y’all. And sing along!
http://www.youtube.com/watch?v=0tFW4jGKnOM
January 19th, 2009 at 2:27 pm
Maybe this doesn’t apply, but here’s a look at a Dec-Dec, 10 year comparison to another historic recession era…
12/2008 = 210.228
12/1998 = 163.900
28.266% increase
12/1936 = 14.0
12/1926 = 17.7
20.904% decrease
Inflationdata.com
January 19th, 2009 at 2:55 pm
An excellent 15 minute video on this topic. Fuzzy numbers. Worth watching.
http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers
January 19th, 2009 at 3:55 pm
Tell that to Blue Cross who raised insurance premiums 13% for 2009.
Tell that to the cardiac clinic that checks my pace-maker twice a year for $400 plus check ups that are NOT covered by health insurance.
January 19th, 2009 at 4:02 pm
NUMBER ONE CAUSE OF BANKRUPCY IN THE USA: medical costs,
Weighting of medical costs in CPI calculations: NEGLIGIBLE.
Consequently it’s all a bunch of mendacity.
Enjoy your health while you have it. When it’s gone, if you’re not rich in our “for profit medicine” society, you will soon be destitute.
January 19th, 2009 at 4:12 pm
AGG,
Look on the bright side, if your costs are a high enough % of AGI you can deduct them….
I’m Erin Burnett, I just painted a silver lining.
January 19th, 2009 at 4:35 pm
ben22,
When “deductions” mean a dollar for dollar reduction of taxes, then we can look at “deductible” expenses as truly deductible. Why should my medical expenses be on a par with new flat panel displays for a business? Our system is crooked. I hope Daschle carves the insurance companies a new asshole.
January 19th, 2009 at 5:08 pm
DEDUCTIONS??? My farking Ar$e. Those living off of SS and other modest, sometimes meager supplements, unless they die a quick death, are destined to be destitute. As my friend Walt Kelly of Pogo fame put it… (paraphrase/modification) let’s see, deduct 100,000 of medical bills from zer0 tax liability and I still owe 100,000. Yikes!
January 19th, 2009 at 8:29 pm
Out in the streets of Manhattan, I’m seeing inflation, not deflation.
The chinese place where I get lunch raised its prices last week.
When I asked the coffee vendor that sells me my morning coffee + chocolate chip muffin whether she’s seeing inflation or deflation, she told me she had been fighting with her donut supplier because although the price of flour has gone down 50%, the donut supplier is raising prices. She said her napkins, paper cups, and all other supplies are also going up in prices.
I *do* see price decreases when it comes to staple clothing items (retailers know there’s a shakeout in the works), but I don’t see price declines elsewhere.
So is deflation fact or fiction? I’m in the camp that thinks massive inflation is inevitable.
January 19th, 2009 at 10:27 pm
@Thisson: There’s still inflation in food but deflation in just about everything else…….for the time being.
January 19th, 2009 at 11:21 pm
fellas,
I know you are upset about medical costs, as we all should be, but my comment was meant to be taken as a joke. Was that not clear??
January 20th, 2009 at 7:00 am
Interviewed a few PMs last week. Asked them if, on the institutional side, talks were of deflation or inflation and thay ALL gave me a puzzled look.
Talks are of pension underfunding, period.
January 20th, 2009 at 7:02 am
Deflation in assets and useless stuff
Inflation in essentials.
January 20th, 2009 at 7:04 am
Weighting of medical costs in CPI calculations: NEGLIGIBLE.
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Do they put 1, 2, 3 or 4 cars in the US calculation of CPI?