Reply #30

1. It is a poll. They call people and see if they have a job, looking for a job, unemployed, etc. Polling data traditionally has wide margins of error as well as you can create questions to generate the answers you WANT.

2. "Discourage Workers" - Clinton stop counting those people who are unemployed, but no longer looking for work. By labeling them, we no longer count them as unemployed.

3. Temp/Part time - Bush increase the use and definitions of temp and part time workers into the employment numbers, making it look better than it is.

Hedonics - this alters the price of a good, based on the technology benefit it has to the consumer. Example, you can use the iPhone to surf the internet, so it serves two purpose, so instead of reflecting the actual cost of product, they adjust it lower to reflect the technology benefit. However, the man on the street is STILL out of pocket for the full amount. Hedonics is one of the most highly critical change to the model.

Substitution - initaily this was argued that if the price of steak increase, the consumer can purchase hamburger. As the consumer is still meeting their utility effeiencys - steak and hambger are both protein. What subsitution reflects is changes in consumer spending habits as the cost of one good increases, they will select a lower cost good to meet a similar need. However, this is actually lowering the CPI number because of the impact of inflation. The BLS can use subsitutions to change the size of product, brand names, generic names, and even time when they measure the price. It reeks of manipulation. I am happy to provide the BLS text sample of what they can do with Subsitution - it is pretty shocking.

Geometric Weighting - goods have always been weighted in the index, but now geometrical weightings have pushed some goods higher that drop in value, while certain goods with higher volatility are weighted lower.

CORE - the Fed and other's like to discuss the CORE. This is the CPI minus FOOD and ENERGY. They argue that Food and Energy fluctuations are temporary and can distort inflation. The reality is that Food and Energy are the largest consumption factors that impact consumers and as they have shorter commodity cycles (1-6 months) they certainly do have higher volatility. However, to remove them to measure inflation - is ignoring the biggest expenditure for consumers. So far the Fed's pat answer is that Food and Energy prices are temporary - however we have seen a steady rise of a couple of years. What IS temporary - we don't know because the Fed will NOT define Temporary.


Commodities - Soft Commodities (Food and Energy) have shorter life cycles to market (1-6 months) that certainly impact the "head line" inflation number, even with all the model changes. However, Hard Commoditeis (Iron, Copper, and other raw materials) have a longer time to market (mining -> refining -> manufaturing -> finished goods -> inventory). It can take 6 -18 months (and longer depending on inventories) before higher commodity prices trickle down to the consumer (in the CPI measure). However we ARE starting to see it. The model will allow the BLS to keep rachetting it down lower, even Bush's new CPPI-U will even push it lower. So we may never see high inflation - if reported by the BLS and their model.

1. In order to attack Treasury Buyers, the rate of inflation must not be too far above the shorter-term yield curve on notes.

2. It keep the value of the dollar from falling too quickly.

3. Most importantly - the CPI is used to determine the rise in Social Security Payments.