(We’ll get to the ECB going negative on rates after this.)

What, trust the CPI?  In a word:  No.  They have almost no bearing on your life and they apply only to alien life forms on some other planet, near as we figure it. There’s a lot of background to the contrary on the (massive) Labor Department website:  Take this FAQ...

“2. How is the CPI market basket determined?

The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. There is a time lag between the expenditure survey and its use in the CPI. For example, CPI data in 2016 and 2017 was based on data collected from the Consumer Expenditure Surveys for 2013 and 2014. In each of those years, about 24,000 consumers from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 12,000 consumers in each of these years kept diaries listing everything they bought during a 2-week period.

Over the 2 year period, then, expenditure information came from approximately24,000 weekly diaries and 48,000 quarterly interviews used to determine the importance, or weight, of the item categories in the CPI index structure.

“3. How is the CPI sample created?

A particular item enters the CPI sample through a process called initiation. This initiation process, typically carried out in person by a CPI data collector, involves selecting a specific item to be priced from the category that has been designated to be priced at that store. For example, suppose a particular grocery store has an outlet where cheese will be priced. A particular type of cheese item will be chosen, with its likelihood of being selected roughly proportional to its popularity. If, for example, cheddar cheese in 8 oz. packages makes up 70 percent of the sales of cheese, and the same cheese in 6 oz. packages accounts for 10 percent of all cheese sales, and the same cheese in 12 oz. packages accounts for 20 percent of all cheese sales, then the 8 oz. package will be 7 times as likely to be chosen as the 6 oz. package. After probabilities are assigned, one type, brand, and container size of cheese is chosen by an objective selection process based on the theory of random sampling. The particular kind of cheese that is selected will continue to be priced each month in the same outlet.

This item will be repriced, monthly or bimonthly, until it is replaced after four years through sample rotation. Repricing is usually done in person, but may be done via telephone or the internet. The process of selecting individual quotes results in the sample as a whole containing a wide variety of specific items of a category roughly corresponding to consumer purchases. So the cheese sample (or the new vehicle sample, the television sample, etc.) contains a wide variety of styles and brands of cheese, vehicles, televisions, etc.”

That Doesn’t Cover Hedonic Adjustments

I mean people will change-down to pot roast from filets in groceries, but what about all the other crap we buy?  If you know where to look:

The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item. Hedonic quality adjustments for rent and owners equivalent rent are used primarily to adjust for the age of a rental unit, and for utility adjustments.

More information on hedonic quality adjustment may be found on our page containing responses to frequently asked questions.

CPI Item Categories that Utilize Hedonic Quality Adjustments:

  • Men’s Suits, Sport Coats and Outerwear
  • Men’s Shirts and Sweaters
  • Men’s Pants and Shorts
  • Boys’ Apparel
  • Women’s Outerwear
  • Women’s Dresses
  • Women’s Suits and Separates
  • Girls’ Apparel
  • Men’s Footwear
  • Boys’ and Girls’ Footwear
  • Women’s Footwear
  • Major Appliances
  • Televisions
  • Other Video Equipment
  • Photographic Equipment and Supplies
  • Rent of Primary Residence
  • Owners’ Equivalent Rent of Primary Residence
  • Smartphones
  • Land-line Telephone Services
  • Internet Services
  • Cable and Satellite Television Services

There’s also a hedonic-like technique to adjust down based on computer costs and 3G versus 4G and things like that – all chances to make things look good.  Point being people buy what’s cheap and if you’re willing to be fashion-police-bait, hobble with 3G, and like hamburger a lot, great…you may be able to come in about where the CPI says.

Much more and we will be hedonic’ed out of a nice smoky Gouda into something like Kraft American Singles…We’ve already dumped the Trump Vodka, which, like his presidency, saw some of the novelty wear off.  More on the order of $2-Buck Chuck now.  (Although in a flourish of marketing skill, I’ve convinced Elaine than Sangria by the jug is healthier than $40-buck a fifth tequila.)

On the other hand, our food costs are up well over 10% compared with last year (we eat well…very well…in fact, my stomach believes I’m rich).  I’ve talked with numerous head of cattle on the road into town and not one of them is making any more per hour.  Yet filet mignons are up to $24 and change a pound now.  Here’s a FauxSnooze story from 2013 that cited $13.99 a pound…so six years to almost double is what inflation rate?

(9.4% but hey!  You have a calculator, too, right?  Lot closer to our “actuals” overall, too…)

Hell no, you can’t trust claims.  Look to your checkbook and your freezer for “actuals.”

That gets us to the reason we watch the CPI  (honest or otherwise) so closely at this time a year:

8. How is the CPI used by the Social Security Administration(SSA) to calculate Cost of Living Adjustments (COLAs) for Social Security recipients?

Congress amended the Social Security Act of 1935 with public law 92-336 in 1973.Part of that amendment called for automatic annual cost of living increases to be made to Social Security payments based on the CPI.

The COLA is defined as the percent increase between the third quarter average of the CPI-W for a given year and the previous peak third-quarter average of the CPI-W. BLS calculates the CPI-W and other CPI series, but we do not determine policy regarding how these series are used by other agencies, nor are we involved in making or adjusting Social Security payments. Additional information about the COLA is available on the SSA website.

OK…see if you can remember all that as we  now lay out this morning’s CPI report…this is a cross your fingers, arms, and legs moment:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in August on a seasonally adjusted basis after rising 0.3 percent in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

Increases in the indexes for shelter and medical care were the major factors in the seasonally adjusted all items monthly increase, outweighing a decline in the energy index. The energy index fell 1.9 percent in August as the gasoline index declined 3.5 percent. The food index was unchanged for the third month in a row.

The index for all items less food and energy rose 0.3 percent in August, the same increase as in June and July. Along with the indexes for medical care and shelter, the indexes for recreation, used cars and trucks, and airline fares were among the indexes that increased in August. The indexes for new vehicles and household furnishings and operations declined over the month.

The all items index increased 1.7 percent for the 12 months ending August; the 12-month increase has remained in the range of 1.5 to 2.0 percent since the period ending December 2018. The index for all items less food and energy rose 2.4 percent over the last 12 months, its largest 12-month increase since July 2018. The food index rose 1.7 percent over the last year while the energy index declined 4.4 percent.

Depending on who you are, this report will mean different things.  The Federal Reserve looks at the cost of all goods, less food and energy because that’s “more stable” and “reliable.”  Which is a crock because unstable, unrealiable, or not, people still have to buy what they need and those are what you call in accounting actuals.  The rest?  Well, anyone with a spreadsheet can make shit up all day long. (I did that in the corporate world a lot.  Just learn that “made up shit” says “pro forma” on top (or “projected”) and you’ll be fine   But it doesn’t mean groceries got cheaper, though, know what I mean?

Same thing with gasoline.  Triple A says national it’s $2.571 a gallon. A year-ago it was $2.843…so big decline there.  Damn shame property taxes don’t get directly measured and reported in aggregate.  Gas has gone down but want to take today’s side bet on the cost of local and state government?

Retail Sales and Import-Export prices tomorrow.  Do some toe-touches at the gym today.  We don’t want you getting hurt grabbing your ankles tomorrow.

ECB Goes Negative

Press release out this morning:

“(1) The interest rate on the deposit facility will be decreased by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.00% and 0.25% respectively. The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

(2) Net purchases will be restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”  More on the ‘pean website.  (There’s no ‘e’ in program, either, but I digress.)

Let’s see:   Negative rates and buying their own paper .  Want to tell me how this ends well?

In Passing

Supreme Court’s Asylum Decision: Who Will Be Impacted.

Joe Biden and Elizabeth Warren to face off in third Democratic debate – I call Warren by TKO in round 3.

Time Magazine should change its name to Climate Monger Weekly with all this hitting their RSS in a row:

So far no one is mentioning the chart and the data out to 2022 we have on the Peoplenomics side for subscribers.  Marketing, marketing, marketing, kiddies.

Off to corale some coffee…Write when you get rich,