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To: UnBelievable who wrote (22053)	9/27/2000 9:11:24 AM
From: Don Lloyd	Respond to of 436258

UnB - [...The Labor Department has miscalculated the consumer price index ...] That's what generally happens when you publish the desired numbers first, and then try to see if you can come up with a calculation method to match. Regards, Don

To: UnBelievable who wrote (22053)	9/27/2000 9:19:30 AM
From: LLCF	Read Replies (1) \| Respond to of 436258

Washington Post: "The error appears to have occurred from accidentally double-counting some allowances for quality improvements, sources said." ROFLMAO: Inflation Higher Than Reported By John M. Berry Washington Post Staff Writer Wednesday, September 27, 2000 ; E01 Consumer price inflation has been slightly higher over the past year than officially reported because of a calculating glitch at the Bureau of Labor Statistics, government sources said. The bureau is preparing to revise upward the change over the last year in its consumer price index, the nation's most closely watched measure of inflation and the one used by the government to calculate cost-of-living adjustments in Social Security payments, veterans benefits and federal pensions. For the 12-month period ended last month, consumer prices rose 3.4 percent--partly as a result of surging energy prices--while the core CPI, which excludes energy and food items, rose 2.5 percent. The revision, which could be announced before the end of this week, is likely to result in an official inflation rate that is higher by about 0.1 to 0.3 percentage points for the past 12 months, the sources said. A revision of this magnitude won't please either Federal Reserve officials or investors, because to some extent both have been unhappy with the acceleration this year of both the CPI and the core portion of the index. Fed policymakers are widely expected to leave their target for short-term interest rates unchanged when they meet next Tuesday, and the revision probably won't affect that outcome. But it won't be welcome news for those investors who have begun to anticipate that the next Fed policy change would be a rate reduction. The difference will mean a bigger January increase in the government benefit payments received by roughly one in five Americans. Last year, the Social Security cost-of-living adjustment was 2.4 percent, which was determined by the increase in the CPI average for the third quarter of 1999 from the average for the third quarter of 1998. The adjustment boosted the program's average monthly benefit by $19, to $804. That meant that each increase of one-tenth of a percentage point in the CPI was worth 79 cents a month to an average Social Security beneficiary, or $9.49 over the course of this year. An upward revision in the CPI also will mean a bit less federal tax revenue, and hence a slightly smaller budget surplus, because the CPI is used to index numerous provisions of the tax code, such as the size of personal exemptions and the points at which income tax brackets increase. The CPI also is used in the private sector to adjust for inflation in a variety of ways, including some rents and labor contracts. This will mark a break in the BLS's policy of not revising the CPI once it has been published because of the widespread ramifications of such a change for both the government and private sector. When asked, Katharine G. Abraham, commissioner of labor statistics, declined to comment. BLS officials notified the White House of the problem earlier this week. BLS statisticians discovered the glitch some time ago, but it has taken quite a while for them to rerun the mountains of price data collected each month to determine its impact on the overall index. Government sources did not disclose when the problem first began to affect the index. The CPI is compiled from data on the changes in the prices paid by consumers for a hypothetical "market basket" of certain goods and services. The current problem involves the agency's efforts to assess how much of the change in an item's price is due to an improvement in its quality--for example, when the price of a certain new car is compared with last year's model of the same car. If the new model of an item includes improvements, such as when an option on a new car has become standard equipment, that is taken into account in deciding how much of the price increase represents inflation and how much is a quality improvement. The error appears to have occurred from accidentally double-counting some allowances for quality improvements, sources said. Since there are relatively few quality adjustments for food and energy items, the upward revision is likely to affect the core portion of the CPI as much as the overall index. Errors occasionally have been detected in the past in some of the raw data that are used to calculate the CPI, but apparently they have never been large enough to affect the overall index. Economists have debated for years whether the CPI accurately measures inflation, and whether the BLS's methodology should be changed. Based on its own research and recommendations from outside economists, the BLS has made changes in recent years to improve the CPI. Correcting the current error is a technical matter, and will not change the BLS's overall method or approach for making quality-improvement allowances. DAK