Bad Inflation Numbers From BLS

A couple of days ago I commented in passing about the Bureau of Labor Statistics plans to change the way it reports its inflation numbers. I realize that I did not fully understand the issue until a couple of posts clarified the problem.

Currently, BLS reports index numbers and changes only to the first decimal. Remarkably, it computes the monthly change based on index numbers rounded to the first decimal, even though it obviously has the data calculated to many decimals. This can lead to the monthly inflation figure being understated or overstated, depending on the rounding.

For example, suppose the June index number is 202.050 (rounded to 202.1) and the July number is 202.249 (rounded to 202.2). The inflation rate calculated based on the three decimal index numbers is 0.0985 percent, which would be rounded to 0.1 percent in the monthly CPI report. The inflation based on the one decimal index numbers is 0.0495 percent, which is rounded to 0.0 percent in the monthly CPI report. In this case, the rounding goes the wrong way.

Beginning in January, BLS will calculate the changes based on indexes calculated to three digits. This is a simple and desirable move. It should have been done long ago.

Of course, monthly inflation data are always highly erratic (hence my preference for three month averages), so it is silly to ever make too much out of a single month's data. But, there is no reason to ever give out inaccurate data when it is so easy to give out more accurate data.

--Dean Baker

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