This post originally appeared on February 13, 2023
On Friday, after the close, the US Bureau of Labor Statistics revised the December CPI number. People hoping for a Federal Reserve “pivot” to lower interest rates have been focused on the month to month CPI to get a sense of any short-term change in the direction of prices. Government statistics are frequently revised, so this could be considered normal. However, we note that the revision took the monthly change in December prices from negative .1% to positive .1%.
The main reason the stock market rose so much in January is because the CPI convinced people that prices were starting to come down. That was followed by the use of the word “disinflation” several times in recent weeks by Fed. Chairman, Powell. (Disinflation is not lower prices. It is a slowdown in the rate of increase in prices.)
We spent much of last year explaining how the CPI was being understated by as much as 100%. We provided our calculations showing that when reported inflation was 8%, the real rate was in the mid to high teens. We have written continually that government statistics do not represent reality; but rather, are generated by government employees to advance a specific narrative.
In addition, there has been much commentary in the financial community that the Federal Reserve has access to enormous amounts of data. We accept that as true, but the Fed kept rates far too low for far too long meaning they can easily misinterpret data. In addition, none of this does them any good if the data they get shows a decrease in prices when there’s really an increase.
Most importantly, these revisions follow a consistent pattern. From an article we published last month:
In fairness, it’s hard to compile data for a country with an economy as large and diverse as the US, so it’s reasonable to expect some adjustments. However, there is a typical pattern we see. The initial data is what gets all the headlines and the attention, and tends to be optimistic. The later adjustments tend to show a weaker economy than previously thought, and this happens when few are paying attention. If it were an honest process, there would be an equal number of up and down adjustments.
It’s interesting timing when the adjustment takes the numbers from negative to positive and come after the close on a Friday a month later. The January CPI gets announced tomorrow (Tuesday). The market will be riveted and will trade based on the new number. Our question is how accurate will tomorrow’s CPI be.
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