The impact of cpi changes

Calculated risk has an interesting post this morning that shows how CPI inflation values impact Social Security cost of living adjustments (COLA).    This is worth checking out as it adds some important context to why we might be interested cpi inflation in the first place.  The post includes lots of explanatory text regarding how all the pieces fit together to determine COLA changes.

Early Look: 2012 Social Security Cost-Of-Living Adjustment on track for 3.5% increase

Calculated Risk's view of CPI

Bill McBride of the always excellent Calculated Risk blog has now weighed in with his approach to the latest CPI figures with his post on Key Measures of Inflation increase in August

Bill includes both the BLS CPI number and the Cleveland Fed's median cpi and trimmed mean cpi (alternative measures of core inflation).   Key take away is

"On a year-over-year basis, these measures of inflation are increasing, and are near the Fed's target."  

Adding new variation to the preceding CPI charts, the Calculated Risk cpi chart covers the almost 22 year period from January 1990.  All three representations of core inflation are tracking close to each other over the past year but have shown larger differences in the past.

http://cr4re.com/charts/charts.html?CPI#category=CPI&chart=InflationAugust2011.jpg

Update: 20 September 2011

From this chart, the uptick over the past year for all three measures looks quite sharp and of course we cannot tell what it will do next.  

On the other hand, this 21+ year view also shows a clear downtrend in all three measures.which doesn't add up with my personal feelings about actual changes in inflation over that period of time.  Remember from one of our previous charts, when we look at Headline CPI, we do not see a similar downward slope.

 

Of course, none of these measures directly shows the longer term cumulative impacts inflation and all three rule out aspects of inflation that actually impact ordinary citizens to end up with values that surely seem to be less than what American households really experiencing.  My view is that these specialized metrics are at best a distraction from the main event: the cumulative inflation impact on each separate interesting sub-component of cpi.  .    

From today's series of CPI posts, we now have 5 different views of CPI

1. A year over year view from the BLS news release showing just the past 12 months for just headline CPI
2. An almost 12 year view of year over year inflation from Doug Short showing both headline and core cpi
3. An almost 22 year view of year over year inflation from Calculated Risk showing three different metrics that reflect core inflation
4. A 54+ year view of year over year inflation from Doug Short showing both headline and core cpi metrics
5. The cumulative effect of inflation since the year 2000 broken down by categories such as energy, health care, and college tuition.

These are all now assembled in successive posts in this blog so that we can look at and think about what story each variation might hold and switch back and forth between them to see what further insights we might glean.

What do you see?

What else do we need to look at?

How else must we transform the underlying CPI metrics to reveal even more important insights?

And recalling a recent post (Creating the context for successful analyses), what's the context for looking at this data in the first place.  One place to start might be to take a look at the interesting link to the Cleveland Fed that Bill McBride provided in his post: Measuring Inflation. 

Monthly trade deficit

Another great chart from Calculated Risk

You can find the full post here

An Old Fashioned Trend Visualization Appliance

And speaking about the excellent Calculated Risk Blog, I would like to point out the following exemplary post on the Housing market.

Using just the ordinary blog posting mechanism and the ability to embed JPG pictures as the Trend Visualization Appliance, the resulting article has a high degree of explanatory power and immediacy. You can literally see what Calculated Risk is talking about as you read as a result of the great blend of clarifying text with the easy to read trend graphics in close proximity.

Not relying on the normal conventions of providing only one or two graphics for headline numbers, Calculated Risks walks us through a series of 6 or 7 less well known but still key factors. This leaves the reader/viewer which a much more complete view of the dynamics that are at work in this one complex area.

Combine this with good references back to data sources and consistently good judgment on what would constitute a reasonable time frame, leaves with a very useful end result that provides the reader with the maximum amount of infomation in relatively short period of time.

The only difficulty with this is the same one I face with this TimelineView blog -- namely that as a limitation of BLOGGER.COM the largest allowed size of the embedded images is just too small to be fully readable and understandable in most instances. To really understand the charts, at least at first, usually requires clicking for the larger image and then using the browser navigation controls to go back to the main page. This really slows down the flow of reading and understanding.

I think we can all learn a lot by watching how Calculated Risk handles these kinds of presentations. Take a look at the post or other similar posts that appear regularly at Calculated Risk and you will see what I mean.

The Importance of Mortgage Equity Withdrawal (MEW)

Another hat tip to Barry Ritholtz in his post on The Big Picture The Capital Commerce Debate this time highlighting some eye opening and vital data about MEW (Mortgage Equity Withdrawal) using charts from courtesy of CalculatedRisk.

You can find a very recent Calculated Risk article here with comments on the debate between Barry Ritholtz and Don Luskin and a clarification of the meaning of the second chart here.