Friday, March 16, 2012

Inflation

The headline for today is that inflation just posted its biggest rise in 10 months. The gains is 0.4% for the month (that’s 4.9% if you annualize it).

I wouldn’t worry about this too much. Most of this is coming from gas price increases.

The problem is that gas goes up and down a lot, and there’s an asymmetry in that people only talk about it going up.

Typically, news organization try to get around this by publishing core inflation too. This is inflation with gas and food excluded, because they’re volatile. This has always seemed like a kludge to me: most of what people care about is gas and food.

Instead, I recommend you pay attention to inflation over the last calendar year. If you go to the CPI home page at the Bureau of Labor Statistics, it prints this number in the upper right. The scary thing is that it prints the NSA monthly change (short for not seasonally adjusted), under that the SA monthly change (seasonally adjusted), and third down the NSA change over the last 12 months.* That last one is what you should use; currently it’s at 2.9%. It’s scary because reporters typically choose the one right above that to be “current” but they end up just being alarmist.

The value of looking over the last year is that the frequent ups and downs in those volatile gas and food prices will tend to average out.

* You probably want to avoid data that isn’t seasonally adjusted … unless it is taken over 12 months, in which case you’re OK because that’s counted all the seasons equally.

No comments:

Post a Comment