Huge CPI Revisions – Prices Rose Much Faster Than Originally Reported, for Months

February 13, 2023

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2:12 pm

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BLS CPI Revisions vs Original Reporting, Chart by Mish

On Friday, February 10, the BLS quietly revised the CPI higher for four of the past five months, with one month unchanged.

Here is the BLS Updated Seasonal Factors Announcement.

Each year with the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. This routine annual recalculation may result in revisions to seasonally adjusted indexes for the previous 5 years. [And it did in spades] Recalculated seasonally adjusted indexes as well as recalculated seasonal adjustment factors for the period January 2018 through December 2022 were made available on Friday, February 10, 2023.

All Items as Reported and Revised

December as Reported -0.1, As Revised +0.1
November as Reported +0.1, As Revised +0.2
October as Reported +0.4, As Revised +0.5
September as Reported +0.4, As Revised +0.4
August as Reported +0.1, As Revised +0.2

Hmm. It seems the bit of celebratory deflation in December didn’t happen. Let’s look further.

Food and Beverage Revisions

Food and Beverage Items as Reported and Revised

December as Reported +0.3, As Revised +0.5
November as Reported +0.5, As Revised +0.6
October as Reported +0.6, As Revised +0.7

Hmm. It seems the Thanksgiving Turkey you bought cost more than they said.

Core CPI Month-Over-Month

Core CPI as Reported and Revised

December as Reported +0.3, As Revised +0.4
November as Reported +0.2, As Revised +0.3

Core CPI is all items minus food and energy. Even that was up in the final two months of the year.

Smelly Revisions

Looking back to 2021, I also see a pattern of upward revisions late in the year.

Perhaps this all balances out. But even if so, revisions of this size are more than a bit smelly.

Expect Negative Job Revisions

Speaking of revisions, I have been expecting negative revisions on jobs given the massive discrepancy between employment and nonfarm payrolls.

For discussion please see Unemployment Rate Hits New Low of 3.4 Percent as Jobs and Employment Jump But…

Jobs and employment rose more than expected in January. But because of massive revisions, the BLS cautions all of its household data is full of errors.

Hmm. The BLS household data is full of errors too. Who coudda thunk?

And please note that of the alleged job increase of 894,000 in January, 810,000 was a population control revision.

Payrolls vs Employment Since May 2022

Nonfarm Payrolls: +3,031,000
Employment Level: +1,893,000
Full Time Employment: -166,000

Employment and payroll revisions are a given. And they probably won’t be pretty.

While we are at it, does anyone have a lot of faith in that fourth-quarter 2022 GDP report?

I smell revisions there too. And by the way, the 4th Quarter 2022 GDP Is Much Weaker Than Headline Numbers.

A 2022 recession is very much in play, although Some Believe It Will Be a Rolling Recession.

This post originated at MishTalk.Com

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bobber

2 years ago

DUUUH! Biden didn’t fool anyone. This has become his modis operandi.

rcintc

2 years ago

All you have to do is walk into a grocery store and shop to know the BLS number is bogus.

My grocery bills are 45% higher than they were last year.

Zzzlaverdad

2 years ago

The government is so honest with there reporting numbers. Tomorrow we already know they will provide fake numbers. Who knew a dozen eggs a year ago at less then $1 a dozen would be $5 a dozen. What inflation?? Lol

3icestation

2 years ago

Public radio news said those illegal border crossers all 5 or 6 million, if they were legalized, that wood really help inflation, guess those people won’t add to demand for products or deflate wages. Good news is selling more gas from national reserve you pay for it three times ,when it goes in the reserve,when the sell it at the gas pump,and when you buy it back for the reserve.

Counter

2 years ago

It’s theft.

H.1.4 weekly report titled “Factors Affecting Reserve Balances.” Buried deep in this document is an item called “Earnings Remittances Due to the U.S. Treasury.” This is the deferred asset account referenced in the Fed’s Press Release.

In the chart we can see that the account turned negative for the first time ever during the week of September 21, 2022 when the Fed Funds rate rose above the break-even point for Fed earnings. It has been growing more negative each week since then.

As of 1/18/23 the deferred asset account has a cumulative balance of -$24 billion.

Currently, the Fed is losing $2.2 billion per week. If rates do not change, this translates to an annual loss of $114 billion. If the Fed keeps tightening, as expected, the weekly losses will only grow.

To put this in perspective, the Fed has total capital of $42 billion. The projected losses for 2023 are almost three times the Fed’s total capital.

We project that the deferred asset account will grow to at least $240 billion over the next two years.

As stated in their press release, the Fed is required to remit all excess earnings to the Treasury. Over the past 20 years, they have averaged sending $64 billion per year back to the Treasury. These earnings have been used to offset the government’s fiscal deficit. As the Fed is now generating losses, it is the taxpayers who will bear the brunt of the Fed’s monetary policy decisions. Under the Fed’s worst-case scenario, they expect the deferred asset account to remain until 2030.

In addition to the net operating losses, the Fed is also carrying a huge unrealized loss in their SOMA portfolio. The total unrealized loss of the SOMA portfolio at year end is $1.1 trillion.

These market losses will only be recognized if the securities are sold. Presently, the Fed is reducing their portfolio as securities mature, so they won’t have to recognize any losses.

We’ve had seven full months of QT to date, with the results falling short of expectations.

The Fed has not hit their target yet in any month, and the total reduction to date is only $334 billion of a projected $522 billion, or 64% of target.

Finally, as losses continue to mount, the Fed may be forced to create new reserves to meet their obligations. This would be inflationary and would exacerbate the problem they are trying to solve.

Fed Update: The Losses Keep Rolling In

Jan. 20, 2023 7:52 AM ET

8dots

2 years ago

Reply to Counter

The Fed might pay the Primary banks $250B/Y, but the gov pay investors (-)4%/Y : $31T debt x 0.04 = $1.2T/Y in 2023. If we enter recession

RRP will fall and rates will be cut, but the gov will pay investors only (-)2%, or (+)1% on higher debt.

8dots

2 years ago

The Core CPI Y/Y (-)0.3%. Food and beverage Y/Y (-)0.1%. The Core CPI M/M : lower highs, rolling hills.

In Feb 2020 the core CPI was 2%. It turned down to 1.5% in Jan 2021. The breakout > Feb 2020 was in Oct 2021. For 8 months wages

popped up. The core CPI was behind the curve. Few millions workers : ER nurses, doctors, WMT employees, truck drivers, takeout windows, mfg, energy… got higher wages due to the risk premium and shortages. The rest 160 millions still benefit from their sacrifices. That should change because the risk premium is gone. In June the Core CPI Y/Y might be : (-) 4%/5%. That’s a good thing. Noise suppression for clear communication.

8dots

2 years ago

Reply to 8dots

Correction : Inflation was behind the curve for a year and a half, not 8 months. In Apr 2020 Crude oil futures was (-)40.

Doug78

2 years ago

The revisions were rather modest and showed that inflation is not accelerating but decelerating albeit at a lower rate than initially reported. It gives the Fed a reason not to lower rates and perhaps to hike them a bit more. This is not signaling a change in trend of inflation at all even if we could read into it that the economy is a touch bit stronger than expected.

Jojo

2 years ago

This is why most government statistics should be delayed by say, 3 months. Or only issue a 3 month moving average.

Doing this would likely reduce market volatility also.

Salmo Trutta

2 years ago

Reply to Jojo

No, gov’ts should not publish the seasonally mal-adjusted data.

Salmo Trutta

2 years ago

Vt is an “independent” exogenous force acting on prices.

“Quantity leads and velocity follows”.

Cit. Dying of Money -By Jens O. Parsson

The rate-of-change in money flows, DDs, peaked in Feb. Obviously, Vt peaked in June and hasn’t yet declined.

See: Large Time Deposits, All Commercial Banks (LTDACBM027NBOG) | FRED | St. Louis Fed (stlouisfed.org)

Dr. Philip George: “The velocity of money is a function of
interest rates”

Bam_Man

2 years ago

Real Disposable Income has left the building.

Rbm

2 years ago

You would think a system that is set up to report data would not report until it has the data.

KidHorn

2 years ago

The BLS and BEA should stop doing adjustments. They’re terrible at it. Not sure if they’re politically influenced to do so or not. But since it seems their numbers are almost always rosier at first, I suspect they’re under pressure to fudge the truth.

I get that employment goes up leading to Christmas and then drops off. So what? Just add a note that that’s what usually happens and by how much.

When the weather is reported, they don’t do seasonal adjustments. They don’t say the actual temperature is 60F, but since it’s February in Chicago, we’re reporting the temperature as 95F.

shamrock

2 years ago

Since these adjustments are just changes to the seasonal adjustments they probably even out over the course of 12 months. Eyeballing the chart it looks like the first half of the year numbers were adjusted down and the second half the numbers were up.

shamrock

2 years ago

Reply to shamrock

Looking at the data I see that December prices went down -0.3% from November on a non adjusted basis, and that didn’t change. The seasonally adjusted figure was revised from -0.1% to +0.1%.

klausmkl

2 years ago

Truth is always the first casualty of War. The Neocons want World War. Just watch.

MJS357

2 years ago

Wage/price spiral. Fed talked about many times as potentially being a factor. Pundits and “experts” blew it off. These people don’t live in the real world down here with the serfdom. Now, maybe the hedgers, bankers, op-ed writers, and TV experts will listen.

Matt3

2 years ago

Reply to MJS357

I think most of the government figures are BS. If this is due to malfeasance or just incompetence is unknown. My guess, after having interactions with government, would be incompetence.

PreCambrian

2 years ago

How did the BLS do this more “quietly” than they have done previously? I appreciate that you pay attention to this. I don’t like the inflation. There could be “smelly” adjustments. I would welcome a factual (as opposed to political and non-informed) investigation as to how and why these adjustments were done. I just wouldn’t jump to conclusions. I am certain that there are literally volumes of standard procedures for performing these calculations. Probably very few, if any, really understand them. For all of the revisions, the BLS has been relatively transparent that they have occurred. The most smelly to me is the change from a two year adjustment to the CPI weightings to an annual adjustment. That was a procedure change.

CRS65

2 years ago

Reply to PreCambrian

The BLS makes seasonal adjustments to CPI once each year in January. The adjustments this year do not meaningful change the trend of broad disinflation that began in July.

Huge CPI Revisions – Prices Rose Much Faster Than Originally Reported, for Months

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