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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (47829)	2/18/1999 2:47:00 PM
From: Stefan	Read Replies (1) \| Respond to of 132070

They are making adjustments to CPI. Thursday February 18, 2:24 pm Eastern Time U.S. set to revamp CPI, mild rise seen for January By Caren Bohan WASHINGTON, Feb 18 (Reuters) - The U.S. government is set to overhaul its main price gauge on Friday with changes that will eventually knock a couple of tenths of a percentage point off the annual rate of inflation. The Labor Department is switching to a ''geometric mean'' formula for calculating the Consumer Price Index, a measure it says will more efficiently take buying habits into account. But the change will have little effect on the January figures, scheduled for release at 8:30 a.m. EST (1330 GMT) on Friday, nor are they likely to alter a picture of very modest inflation in the U.S. economy. ''It's not likely to have that much of an impact,'' Patrick Jackman, an economist with the department's Bureau of Labor Statistics, said of the January report. The new method, under test for almost two years, could alter some components more than others. ''Historically, we've seen it make more of a difference on items which are extremely volatile in price, such as apparel and food,'' Jackman said. The change will better capture consumers' tendency to insulate themselves from inflation by switching to lower-priced goods, such as red grapes instead of green ones when red grapes go on sale, or buying a marked-down brand of shirts in the department store instead of the full-priced label. The new formula is expected to shave two-tenths of a percentage point off the CPI annually, once a full year's data has been built up, according to estimates from the White House Council of Economic Advisers (CEA). The geometric mean comes on top of several other changes the Labor Department has been making to the CPI since 1995. Those changes included adjustments to hospital pricing and last year's overhaul of the CPI market basket. The CEA said that taken together, the changes have curbed the CPI's annual growth rate by almost three-quarters of a percentage point. But because the effect for any given month will be minimal, many private economists have not even factored it into their forecasts for the January CPI. U.S. economists in a Reuters survey predicted the CPI would show a 0.2 percent gain in January, both overall and in the ''core'' rate, which excludes the volatile food and energy components. It increased 0.1 percent overall in January and was up 0.3 percent, excluding food and energy. ''There really aren't a whole lot of places in the economy where you prices rising rapidly,'' said Joel Naroff, economist at First Union Corp., who expected a slightly slower January increase of 0.1 percent. ''Fundamentally, this reflects the inability of businesses to raise prices,'' he said. He also said that, with overseas economies in a slump after a crisis that ripped through Asia, Russia and Latin America, the prices of key commodities such as oil have been soft. A final reason for weak prices is gains in productivity, which means that firms make more goods at lower cost -- even though low unemployment has driven up workers' wages. In 1998, the U.S. Consumer Price Index rose by just 1.6 percent -- the smallest gain since 1986. One of the few components of the CPI that has been rising strongly lately has been tobacco prices, which have been driven up by steep tax increases and by producers passing along the cost of a flood of cigarette smoker lawsuits. Those prices spiked 18.3 percent in December but could come back down a bit in January, leading many economists to feel confident the overall CPI rise will be moderate in January. Economists have also been keeping an eye on the medical component of the CPI because of reports by health insurers that prices would be heading higher. That component rose 0.3 percent in December and was up 3.4 percent for all of 1998. Meanwhile, economists praised the geometric mean and other changes to the CPI but some note the adjustments have made it harder to keep a handle on the inflation trends. Unlike most of the other economic statistics the government produces, past data on the CPI are never revised. That is mainly because index is used for government programs, such as Social Security, for legal contracts and for inflation-index bonds, so revisions would be disruptive the CPI's users.