Statistical fog

14 May 2008 By Martin Hutchinson

Reported US CPI has remained under control in March and April thanks to huge and unprecedented downwards seasonal adjustments. Whatever the theoretical justification for these, they raise questions about the credibility of the figures and risk creating a false market.

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The US Consumer Price Index for all urban consumers rose 0.9% in March and 0.6% in April. After a 0.6% seasonal adjustment in March and 0.4% in April, the "seasonally adjusted" increases were reported as 0.3% and 0.2%, while the seasonally adjusted "core" CPI rose 0.2% and 0.1%. In the decade from 19982007, seasonal adjustments averaged zero, with a standard deviation of 0.14%; the March seasonal adjustment was thus 4.26 standard deviations from the mean and the April one 2.84 standard deviations. Applying average March and April seasonal adjustments to the raw March and April figures gives CPI increases of 0.71% and 0.48%, equivalent to a combined annual inflation rate of 7.4% per annum.

The April Consumer Price Index report released May 14 claimed that petroleumbased energy costs declined at a 0.7% seasonally adjusted annual rate between December and April. However the average US retail price of gasoline increased 20% between those months from $3.00 to $3.61, according to the Energy Information Administration, while the average world price of crude oil increased 20% from $87.62 to $104.98.

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