Higher Prices? Don’t Believe Your Eyes

Sure you go into the grocery store and every time it seems like prices have risen. You go to get gas and it’s higher, too.

But don’t believe your lying eyes. The government says – and will continue to say – there’s no inflation here.

Yesterday a reading on inflation actually declined. The Producer Price Index (PPI) actually went down .1%. Meanwhile, the CPI (Consumer Price Index) went up .3% if you take out those little inessentials known as food and energy.

At the same time, the Bureau of Labor Statistics which delivers this data has announced that next month it will be changing the metric.

Yes, the same institution that has given us the unemployment numbers that have also been manipulated by removing those who are still looking for a job but no longer receiving assistance, will be telling us the inflation rate. Here’s their report:

The Bureau of Labor Statistics will soon update the value weights used to calculate Producer Price Indexes to more accurately reflect recent production and marketing patterns. The new weights, which will be introduced in February 2012 with the release of January 2012 index data, will be based on shipment values from the year 2007. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2002 census shipment values since January 2007.

All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2002 to the 2007 census for all stage-of-processing indexes, durability of product indexes, and special commodity-grouping indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100.

The basic structures of the PPI commodity and stage-of-processing classification systems will not change as a result of the weight revision. The PPIs classified according to the North American Industry Classification System (NAICS), however, will be updated in February 2012 with the release of January 2012 index data to reflect 2012 NAICS definitions established by the U.S. Census Bureau. The weight update will also result in significant shifts in the relative importance of various industries and products. These shifts will impact aggregate indexes in a manner commensurate with the relative gains and losses in value weights from 2002 to 2007.

Read more: http://www.americanthinker.com/blog/2012/01/bls_changing_basis_for_calculating_inflation.html#ixzz1jtx6dT3E

Hugh de Payns at the americanthinker.com explains what it means:

What can this mean? I am guessing that in the most simple terms the BLS is coming up with a new evaluation parameter which will, for practical purposes, bury inflation and price increases even further into the fabric of their reporting. Given the mountain of money that has been created in the last year, the BLS will need this tool to keep the reported or official inflation rate, within acceptable political limits.

Further, he says

Also, it simply belies the issue with the increase in money stock that has built up over the last several years.

Both M1 and M2- basic measures of the amount of money in circulation, have increased very significantly in the last year. Unadjusted:

M1 is up 32%

M2 is up 15%

I hope the reader is paying attention here. A 32% increase in the money supply is very large. The only thing keeping us from roaring inflation is that the velocity of money is so low right now. Money is not turning and churning through the economy quickly, but once it does, all this extra money pumped out into the marketplace will impact inflation in a major way.

ZeroHedge blog adds his thoughts:

pulling a page straight out of the BLS playbook, the BLS announced it would change the weighting in its PPI categories. “The new weights, which will be introduced in February 2012 with the release of January 2012 index data, will be based on shipment values from the year 2007. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2002 census shipment values since January 2007. All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2002 to the 2007 census for all stage-of-processing indexes, durability of product indexes, and special commodity-grouping indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100.” This is a lot of words to say that going forward even more inflation will be crammed into smoothed core price indices, so as to completely ignore any swings in the margins. Because after all who cares about energy and food?

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