Friday's CPI Report: What's Up With the Energy Numbers?

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by: James Picerno

Was something amiss in the energy statistics in Friday'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 CPI inflation 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 surprising is the reported decline in energy prices as per the CPI numbers, a drop that contrasts with the sharp increases in spot prices in February 2008 for four primary energy commodities, according to Barchart:

  • 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 the 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 relatively modest -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 by one dismal scientist on staff. He suggested the possibility for a slight - he emphasized slight - bias in the timing of data collection. He also noted the seasonality factor in the data. Take gasoline, which makes up about 60% of the CPI energy index. The unadjusted one-month price change for gasoline as per the CPI report is -0.6% as opposed to a seasonally adjusted -2.0%. "So there's some seasonal factor that's pulling it down as well," he said.

    Meanwhile, to repeat: spot gasoline prices rose 7.5% last month via Barchart. To which we respond with a formal, hmmm.

    Our economist at the Bureau reminded that no one should confuse nominal pricing with seasonally adjusted pricing. "That's a little bit of the explanation." Nonetheless, he admitted, "I was a little surprised at the gasoline data myself."

    The economist said too that while gasoline represents about 60% of the CPI energy index, the remaining 40% weight in the energy index is natural gas and electricity. Natural gas prices were up in Feburary, but for the moment your editor doesn't have access to electricity prices and so there's the possibility that this may be the missing piece of this puzzle. Perhaps, although for the moment we don't know. Contentment will just have to wait.