Software glitch understates inflation rate since beginning of the year : LUSENET : TB2K spinoff uncensored : One Thread

Wednesday September 27, 1:19 pm Eastern Time

U.S. Inflation May Be Understated

Associated Press Writer

WASHINGTON (AP) -- A software glitch caused the government to incorrectly measure inflation at the consumer level this year, possibly understating it a bit, government officials indicated Wednesday.

But private economists said that won't change the rosy picture of the U.S. economy. And, it won't deter the Federal Reserve -- whose chief aim is to stave off inflation -- from leaving interest rates unchanged at its meeting next week, the economists added.

The Labor Department's Bureau of Labor Statistics said Wednesday it will unveil revisions to its Consumer Price Index data for the period of January through August.

Government officials, speaking on condition of anonymity, indicated the revisions will show consumer prices crept up a little bit more than previously thought.

In addition to serving as the government's chief gauge of inflation, the CPI is used to calculate cost-of-living adjustments in Social Security and other federal benefit payments, as well as in some private benefit plans. An upward revision could boost such payments made next year, economists said.

A briefing by the bureau, which puts together the monthly index, is set for Thursday.

``The revisions to the CPI correct an error recently discovered in the software'' used to calculate components of the index that deal with housing costs, the bureau said in a statement.

The Washington Post, citing unidentified sources, reported Wednesday that the revision is likely to result in the CPI being higher by about 0.1 to 0.3 percentage points for the past 12 months. BLS officials wouldn't comment on those numbers.

But the bureau's statement indicated the revisions are minor and won't change the overall picture of consumer inflation, which has been tame except for energy-price bursts.

``Although the corrections were large enough to require republication, the general pattern of consumer price behavior this year was little affected.''

For the first eight months of this year, consumer prices were rising at an annual rate of 3.4 percent, compared with a 2.7 percent increase for all of last year. The pickup comes from surging energy prices.

The ``core'' rate of inflation, which excludes volatile energy and food prices, rose during the same period at an annual rate of 2.6 percent, compared with a 1.9 percent rise for all of 1999.

The Federal Reserve has boosted interest rates six times over the last 15 months to slow economy growth and keep inflation from escalating. A spate of economic reports indicate that the Fed's rate increases are working.

Given that, many economists believe the Fed will leave interest rates unchanged not only at their Oct. 3 meeting but for the rest of this year.

Even a moderate upward revision to the CPI of 0.3 percentage points wouldn't change the outlook for monetary policy, economists said.

``I don't think that they would get very excited over the revisions,'' said Sung Won Sohn, chief economist at Wells Fargo. ``The Fed is more concerned about price stability and the revisions would not change their understanding of that. We do have price stability.''

Over the years, the CPI has come under criticism, with economists and others complaining that index actually overstates inflation.

Earlier this year, the Fed stopped using the CPI in its inflation forecasts. The central bank switched to an inflation gauge tied to the Gross Domestic Product, saying it was a more accurate measure of price changes at the consumer level.

-- (M@rket.trends), September 27, 2000


Thanks for posting this. Day was when TB2K was a great source for this kind of news, thanks to people like Homer Beanfang and others.

Right now, I'd keep my weather eye on the PPI more than the CPI. A rising PPI will flow into the economy either as rising CPI, or as falling profits. Neither one would be very welcome.

-- Brian McLaughlin (, September 28, 2000.

Brian, Bob Brinker said in Jan to put 60% of assets in cash, 25 in US equities and 15 in overseas. He of course was ridiculed as he was about y2k not being a problem. He now has said raise the cash to 65%.

Standard and Poors has told their clients to reduce stocks to 65%.

Abby Cohen tries to make bad news sound bullish until you look at her numbers.

A business man being interviewed on CNN who has no reason to encourage people to invest in stocks as a brokerage person does was asked as an aside where he thought investors should put their money replied, "Money Market accounts, cash is king".

I think it will get worse before getting better.

In reference to another thread about your comment on Economists, what succesfull corporation ever had one as a CEO?

-- Chief (bmc@sealret .com), September 28, 2000.

Contact: Kathryn Hoyle
              202-691-5902 For Release: Noon
Wednesday, September 27, 2000




The Commissioner of the Bureau of Labor Statistics, U.S. Department of Labor, Katharine G. Abraham, will brief reporters at 9:30 a.m. EDT on Thursday, Sept. 28, 2000, about revisions in Consumer Price Index data for the January-through-August 2000 period.

The revisions to the CPI correct an error recently discovered in the software used to calculate the residential rent and owner's equivalent rent components of the index. The recalculated data were evaluated in the context of BLS guidelines for issuing corrections to previously published CPI data. Corrected indexes will be made available on the BLS website ( as soon as possible after 10:00 a.m. EDT, Thursday, Sept. 28, 2000.

Revisions will be published for both the Consumer Price Index for All Urban Consumers (CPI-U) and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the U.S. City Average, All Items Index, as well as selected lower-level indexes. Although the corrections were large enough to require re-publication, the general pattern of consumer price behavior this year was little affected. From December 1999 to August 2000, for example, the U.S. average CPI-U rose 2.7 percent based on corrected data, compared with 2.6 percent as originally published.

The briefing for media and other interested users will be in Conference Center Rooms 1 and 2 of the Postal Square Building, 2 Massachusetts Avenue N.E. The entrance to BLS on First Street N.E., across from the Union Station Metro stop, must be used to reach the Conference Center on the ground floor. Please allow time to go through security measures. Information and materials from the briefing will be embargoed until 10:00 a.m. EDT, Thursday, Sept. 28, 2000.



BLS Home Page

Bureau of Labor Statistics
Last modified: Wednesday, September 27, 2000

-- (the@official.story), September 28, 2000.

Also see this article...

The Fix is Still Not In for the CPI

Last week's story about a calculation error at the Bureau of Labor Statistics (BLS) ended anti-climatically, as correcting the mistake added only 0.1% to the CPI. The issues surrounding the story, however, raise big questions about the quality of the numbers from the federal statistical agencies such as BLS, BEA, and Census.

-- (M@rket.trends), October 04, 2000.

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