Submitted by The Capital Spectator

Is something amiss in the energy statistics in today’s CPI update?

The question comes to mind after reading the press release for the report on consumer prices in February. In particular, the CPI’s “special” energy index posts a 0.5% decline for last month, which presumably is a contributing factor for why the CPI overall is reported as unchanged for February. Given all the chatter about inflation risk of late, the news that the CPI change last month was zero is surprising, at least to this reporter.

Even more remarkable is the government’s report that shows energy prices, as reported in the February CPI press release, slipped last month by 0.5% on a seasonally adjusted basis. The decline contrasts with the sharp increases in spot prices in February 2008 for four of primary energy commodities, as per data from Barchart, as follows:

crude oil: + 11.0%
gasoline: +7.5%
natural gas: +12.5%
heating oil: +12.3%

The first step in trying to explain the gap is that the spot price changes are nominal fluctuations whereas CPI energy index decline is “seasonally adjusted.” But adjusting for seasonality is, at best, only a partial solution since CPI’s “unadjusted” energy index also fell in February, albeit by a lesser -0.1%.

Unsatisified, we called the Bureau of Labor Statistics in search of deeper statistical contentment. The resulting explanation can be traced to several reasons, we were told. Data, an economist at the Bureau, told your editor, is “collected throughout the month” but it’s not a straight average of prices drawn from each and every day. He left open the possibility for a slight–he emphasized slight–bias in the timing of data collection. He also noted the seasonality factor in the data. “The unadjusted one-month change [for the energy index] is -0.6% as opposed to seasonally adjusted -2.0%. So there’s some seasonal factor that’s pulling it down as well.” He reminded that no one should confuse nominal pricing with seasonally adjusted pricing. “That’s a little bit of the explanation.” Nonetheless, he admitted that “I was a little surprised at the gasoline data myself.”

The economist at the Bureau said too that gasoline represents about 60% of the energy index that’s quoted in the CPI press release. The remaining 40% weight in the energy index is natural gas and electricity. At the moment, your editor doesn’t have access to electricity prices for February and so there’s the possibility that this missing piece of this puzzle may be the source of our confusion about the CPI numbers and the price changes via Barchart. Perhaps, although for the moment we just don’t know.

Finally, we were told that the energy index overall represents 9.698% of the headline CPI index. The implication: energy is of slight relevance in calculating headline CPI inflation.

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