Episode description
Since we’ve talked quite a bit about inflation over the course of this podcast, given that it launched last year, it’s important to note that the calculation of inflation just underwent a change.
And February’s CPI report was the first to be calculated using a new methodology.
Here’s the change.
Measuring CPI in 2022, you would take 2021+2020 consumption.
2023 = ONLY 2022 consumption.
Previously, CPI was calculated using 2 years of data.
Now it will be just 1.
From the page of the Bureau Of Labor Statistics page:
With the release of January 2023 indexes, the BLS updated the spending weights used to calculate the Consumer Price Index (CPI). Previously, weights reflected consumer spending in 2019 and 2020 and were replaced to reflect changes to consumer spending in 2021. In May 2022, the BLS announced the change to use a single calendar year of data and update weights annually from the prior practice of using two calendar years of data and update weights biennially.
It goes on to say, “The COVID-19 pandemic and sudden changes to consumer spending provided motivation to further study this change. After announcing a change to annual weights in May 2022, the BLS published a Federal Register Notice in August 2022 further announcing the methodology change.
So previously, CPI was calculated using 2 years of data.
Now it will be just 1.
It’s not the first time a change has been made in the methodology.
But it’s certainly a convenient time to change it again now.
What we’ve done is erased the big jump in inflation during 2021 from exiting covid and dealing with supply chain disruption.
To bring perspective to the current methods of measuring.. if we were to use the standard calculations from the 1990’s or 1980’s as a current gauge, inflation would be into the double-digits. Something we might want to consider when making comparisons to inflation comps from decades ago.
If you want to have some fun with this. check out ShadowStats.com
Regarding inflation and the Fed, as we’ve mentioned in prior podcasts and via LinkedIn content, the Fed is in a very tough position right now. They cannot simultaneously shore up the banking system and raise rates muvh further to continue fighting against inflation. What happens now can be rationalized in several very different ways. We’ll find out next week where they stand. Is it raise, pause, or cut?