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To: PaulM who wrote (10052)	4/16/1998 8:31:00 PM
From: Pete Schueler	Read Replies (1) \| Respond to of 116796

Well, at least inflation is dead. Now the BLS is going to drive a stake through its heart. Substitution will be our salvation. If your Beamer gets too dear buy a Chevy Cavalier. Can't afford a Cavalier? Get a bike or take the bus. This sounds like a major scam. But because no one is concerned about inflation right now it will not cause much stir. When things do heat up the Govt will be able to play major games with the numbers. Overhaul Planned for U.S. Inflation Gauge By Caren Bohan WASHINGTON (Reuters) - The Labor Department on Thursday announced plans to revamp the nation's main inflation gauge, affecting everything from Social Security benefits to labor contracts and investments that are tied to the index. The new formula for the Consumer Price Index, called the "geometric mean," will attempt to capture consumers' tendency to substitute among similar items in response to price rises, such as buying frozen yogurt when the cost of ice cream goes up. The change will likely trim the growth rate in the CPI. "It is expected that the rate of growth of the CPI will be reduced by about two-tenths of a percentage point per year," said Katharine Abraham, commissioner with the department's Bureau of Labor Statistics. Trimming the CPI's rate of growth would mean slower increases in government benefits such as Social Security. Workers whose wage rises are linked to the index would also be affected as would holders of inflation-indexed bonds. The change is slated to take effect with the January 1999 CPI report to be issued next February. Plans for the revision to the CPI come at a time when inflation is already low. In the year ended in March, the CPI was up a mere 1.4 percent. The adoption of the geometric mean formula follows a series of technical adjustments over the past couple of years that have cut the CPI's rate of growth by a half-percentage point or more, according to government estimates. Some of the tweaking has included new ways to calculate hospital payments and computer prices. More recently, the department at the start of this year completed its periodic overhaul of the CPI's market basket. That change assigned new weights to the various goods and services measured by the CPI and was expected to curb the growth rate as items such as consumer electronics, which have been falling in price, took on greater weight. The decision to replace the current "arithmetic" formula with a geometric mean was based on research that included the use of grocery store scanner data to gather information on consumers' spending habits, Abraham said. She said the research backed the idea that consumers often substitute similar goods. "It suggests that as a general rule there is quite a lot of substitution in response to relative price changes," she said. "It led us to the conclusion that it was reasonable to use the geometric mean formula." The geometric mean will be applied to about two-thirds of the CPI. It will not be used for some categories like housing and utilities in which it is hard to substitute. Even after the CPI is revamped, it will still overlook some of the ways consumers avoid higher prices by switching to different items. Although it would capture the tendency to choose frozen yogurt instead of ice cream, it would not reflect broader substitution such as, for example, buying cupcakes instead of ice cream. To deal with that problem, the department is seeking money to create a new gauge called a "superlative" index that would be issued in addition to the CPI though it might be published perhaps only once a year instead of monthly. The Bureau of Labor statistics has been caught in the cross-fire of heated debate over the past few years over whether the CPI was overstating the true rate of inflation. Federal Reserve Chairman Alan Greenspan, who has been highly vocal on the subject, has touted the budgetary benefits of fixing the CPI. Reducing the rate of CPI's growth could save the government billions over several years because of reduced growth in Social Security payments and because tax brackets would rise more slowly, meaning more revenue for the government. Many labor union leaders and advocates for the elderly have opposed efforts to cut the CPI, charging that critics of the index lacked proof that it was overstated. The Bureau of Labor Statistics, meanwhile, has steadfastly refused to implement changes without hard evidence to back up their usefulness. Adopting the new CPI formula may be the last adjustment for a while, Abraham said, but research will be ongoing. "Will the CPI be perfect after we do what we've been planning to do?" she asked rhetorically. "No, but I think it will be as good as it can be."

To: PaulM who wrote (10052)	4/17/1998 12:21:00 AM
From: Abner Hosmer	Respond to of 116796

Howdy Paul, another interesting outlook: FRANCE'S STRAUSS-KAHN: YEN LOSSES NOT JUSTIFIED BY FUNDAMENTALS economeister.com >>Separately, referring to the G-7 communique, Strauss-Kahn noted the high level of growth in the U.S. and U.K., adding that there was a "risk that inflation could appear -- the subject exists anyway." Asked for clarification on this point, he said "'fear' is too strong a word" to describe the appropriate level of concern over the risk of inflation. "The concern is just that growth is still strong" in the U.S. and U.K. Turning to the French economy, Strauss-Kahn said domestic demand was increasingly acting as the motor for growth, taking over from exports..."As we have growth around 3% we should see the progressive decline of unemployment" over the coming months, he said. <<