Lies, Lies and US Statistics

If you were to believe what the US government and the BLS are saying about the economic recovery, everything appears to be rosy and on the up. You maybe tempted to spend your hard earned dollars instead of saving them for a rainy day…but what if the government is lying? What if they manipulated the statistics, not only to save face but to keep the economy on life support? It would be shameful and malevolent but remember, there are lies, lies and then there are statistics. Charts are courtesy of The Hedge.

In all of the charts below, the green line represents the S&P500

Crude Oil is diverging.

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UK GDP: It’s not a Recession but a Depression

I have wrote, blogged and re-blogged about market manipulation, I believe with conviction that all markets are manipulated and statistics on inflation, GDP and employment are not representative or true. If they were, inflation would be 6% plus, unemployment would be double and GDP numbers would prove we are in a depression.

Cui bono? Our illustrious leaders of course, if George Gidion Osborne, David ‘Never worked a full day in my life’ Cameron and William ‘War Criminal’ Hague had to stand in front of the British public with representative statistics, heads would roll…literally. Not forgetting that the wealth transfer, happening through quantitative easing, would end and the banks would fail due to being completely insolvent. Courtesy of Money Week:

I wrote here a few weeks ago about the oddly opaque manner in which the government figures out what inflation-adjusted GDP growth in the UK is. It doesn’t use the RPI or the CPI as a representative of inflation – as you might think they would – instead, it uses its own deflator. I have no idea how that is calculated, and I strongly suspect that almost no one else does either. The key point to note is that until 2010 the RPI and the deflator were much of a muchness. But in the last few years, they have suddenly (and to my mind inexplicably) parted ways. James Ferguson at MacroStrategy Partners has kindly picked this point up for me and produced this chart:

Real GDP vs NGDP adjusted for RPI

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If you assume that the Office for National Statistics’ occult calculations for the deflator are entirely reasonable and correct, the UK has avoided a double dip recession (hooray!). If, on the other hand, you note that the deflator and the RPI have rarely diverged in the past, and so think that using the RPI to deflate nominal GDP continues to make perfect sense, it turns out that the real economy has been contracting since 2008 (boo!).

That’s not a double dip. It is a depression.

Are inflation figures in the UK representative?

Inflation is defined as the rate at which the general level of prices for goods and services, increases over time. For example, if the inflation rate is 3%, then a £1’s worth of midget gems will cost £1.03 next year.

The CPI or Customer Price Index is the official measure of inflation of consumer prices of the United Kingdom. It can also be referred to as the Harmonised Index of Consumer Prices (HICP). The CPI calculates the average price increase as a percentage for a basket of 600 different goods and services. Around the middle of each month it collects information on prices of these commodities from 120,000 different retailing outlets.

Now bare with me, although it all sounds quite boring it gets interesting if you look at history. The basket of goods that they use to calculate CPI, or what was the RPI or RPIX changes over time and goods are added or removed. This can be done if goods are no longer relevant but it can also be done to replace items that are rising in price. They are then replaced for alternate and cheaper goods. This then impacts on the inflation figure keeping it lower than what it is. I’m not saying it happens on all products but from a political stand point, keeping inflation low is a priority.

Consider the below chart, the inflation figure is derived from the BLS (Bureau of Labour Statistics). How inflation is calculated was changed in the early 80’s and again in the 90’s with the change to the RPIX. The blue chart is how inflation is calculated now and the grey chart is how inflation would be calculated with pre 82 measurements. 9% inflation sounds about right.

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Is the inflation figure reported properly? In my opinion, no it isn’t. The costs of many essential purchases have risen much more steeply than what is reported. In the last 5 years, vehicle tax and insurance has gone up 88%, petrol 56%, electricity and gas 46%, bus and rail fares 32%, food 30% and water 24%. These are not discretionary items but costs you have to pay to just survive. These rises cannot be ignored and need to be represented in actual inflation figures, civil servants need to be doing a better job and held to account, rather than worrying about opinion polls.

I can see the direct impact of inflation in my life, instead of finding crisp notes in my pocket I’m just jingling change these days. Though one thing to consider, it is not a wedge of notes that makes me happy, but its my friends and family that make me richer than any paper billionaire.