Providing some Context for looking at CPI charts

We have posted many charts this past week looking at CPI behavior through a variety of angles and lenses.  Our sources have been light on providing context and we have not filled in this area either.

So here is a first cut at the context that we were holding loosely in mind as we evaluated the incoming collection of charts and created a few of our own using the St. Louis Federal Reserves' FRED software.

To begin, CPI stands for Consumer Price Index.  In our view, the emphasis is on the Consumer (real people living out their lives) and the ways in which changes in Prices (specifically price inflation) might impact the standard of living for those people.

Central Questions:  The question we would like to be able to answer more fully is:

How does the cumulative change in prices affect the buying power of a range of different classes of consumers over time?

In particular, we want to be able to figure out to what degree the Cumulative Impact of Price Inflation changes each different class of consumer's standard of living over time.

Principles.   The underlying principle that we believe to be at work here is that: if cumulative CPI goes up relative to the wage trend for households representing a given class of consumers, then the Standard of Living for that class would go down in proportion.  We are interested in looking at the cumulative change over a variety of longer periods: 2 years, 3 years, 5 years, 10 years, 15 years, 20 years

A second key principle for us is that CPI Inflation is like Compound Interest; and so longer term cumulative views of the data should predominate.


Weaknesses of Traditional Reporting:  To us, the commonly used month over month results represent little more than noise since our focus is on cumulative results.

Even the very widely used year over year reporting is not particularly useful in this regard and is usually distracting at best (1 year effects are interesting but surely not the whole story) and misleading at worst as to the important long term inflation changes that are underway and the implications of those changes on real people's standards of living and quality of life.

A long standing general purpose admonition of ours is to Look at All the Data.   The traditional reporting on CPI violates this rule in spades with the focus on only headline CPI and core CPI .  CPI is an aggregate of aggregates of aggregates which averages out a huge degree of variation that is present in its sub-components.  To begin to understand the impact that cumulative price inflation has on Consumers (real people) we surely need to disaggregate the average CPI values and look individually at a good number of the key sub-components (e.g.  Food, Energy, Health Care, Rent, Transportation, Tuition) to see their cumulative price inflation over longer periods of time.   With few exceptions such as the excellent chart we posted earlier (A Unique View of CPI from Doug Short), almost all reportage we have found on CPI focuses on headline or core cpi.

Now it is true that the official report from the BLS (BLS August 2011 CPI news release)  does provide an exceptionally high degree of disaggregation in its tables by sub-categories and sub-sub-categories.  But there are no sub-component charts accompanying the BLS report, so looking at sub-component increases in cpi is left as a time-consuming exercise for the reader - an option that few have likely taken.    Furthermore, the data presented only covers the most recent 1 year period, so if you want to explore sub-category cumulative changes over periods of 2 to 20 years, you have to look somewhere else (e.g FRED or the BLS data base).

There is a lot of fruitful potential in this disaggregation, but I have not been able to find anyone so far other than Doug Short and our recent post (Drilling down into CPI 20 year trends)  tapping into this for more insights into understanding the cumulative impact of inflation on real people.  We will keep on looking and would love to hear about other work in progress studying the sub-components.

Core CPI interferes with clear thinking.  Finally, looking at widely discussed Core CPI and its many variants,  we see Core CPI as a serious impediment keeping us from thinking more clearly about the cumulative impact of price inflation on real people who all must eat and consume energy.  Rather than stripping food and energy out of the totals to create so-called CORE CPI, it would be much more useful in our estimation to include Food and include Energy as individual sub-categories - to look at the cumulative impact of Food price inflation and the cumulative impact of Energy price inflation as we have started to in our Drilling down into CPI 20 year trends  post.  And rather than lump all the rest of the categories together to create the "core", we would prefer to disaggregate these as well and look at them individually so we can discover patterns currently hidden..

A lot has been made about why Energy and Food are so volatile as the reason for going with Core CPI.  Our investigation shows that the mostly irrelevant month to month variations smooth out incredibly well for FOOD once we look at cumulative totals.  For ENERGY, there is clear volatility, but rather than hiding it, it's better to bring it out into the open.  And when we look at energy using a cumulative long term 5, 10, 15, 20 year approach, there is a lot less volatility than you might expect.  We'll have more on this later.

And the headline CPI number shows very low variability in trend when plotted using a long term cumulative view as we have shown in our early post ( Drilling down into CPI 20 year trends ).

There are further weaknesses we see in traditional CPI reporting regarding the limited number of different classes of consumers currently available) but we will save these for another day.

Now that we have some context on why we want to look at CPI, our plan is to revisit the CPI posts from earlier this past week.  We plan to update them by showing our thinking regarding what we see as the story that might be told for each chart in the context of the ideas we have explored in this post - real people, cumulative impact over longer time spans, disaggregation.  . 

Update 20 September 2011:  We have now updated all previous CPI posts with our further thoughts on what each chart is telling us.  Please check them out.

Frequency of Reporting

In the previous post, we brought up the concept of frequency of reporting on a given metric. We haven't talked much about this aspect of trend analysis so far, despite the fact that it can be quite important. And it interacts with another important topic we brought up in some previous posts: near real time reporting.

We'll take a look briefly at frequency in this post, and give a brief look at near real time reporting in the next.

Error on the Side of Too Often.
Each important factor that you wish to measure will prove most useful in the end if you make a conscious choice to consider its frequency of measurement separately on the merits. My general operational rule is wherever possible to err on the side of measuring too often rather than not often enough.

Measurement vs. Reporting Frequency. When you measure at a relatively high frequency, it's possible later to report on the data at either the high collection frequency, or at a reduced frequency in order to smooth out the trend line pattern. On the other hand, if you don't measure frequently enough, you may miss out on short-lived quantum shifts in behavior that will be lost when reporting at longer intervals.

It's unfortunately not uncommon for vital indicators that are already being collected to have their frequency set so that measurements are too far apart.

Measuring Daily is Often a Good Starting Point. Let's take a specific example: the percentage of eligible children who attend primary school. Ideally, in my opinion, a metric such as this would be best if it were measured daily. There will be times when you will want to look at the day to day trend and see if any disruptive multi-day even has shown up. You may also want to understand any patterns that might be dependent on the day of the week. There will be other times when week by week reporting will be just right and still others when month by month will give the clearest view. Before you actually have the data, you cannot really know which reporting interval will prove most revealing.

My recommendations for the important Iraq metrics of the kind we have been scraping from the recent news reporting is that we make every effort to measure them with a frequency of once per day wherever that is possible.

When is Higher Frequency Helpful? There are some indicators where it would be advantageous to measure them even more frequently than once a day. For example, electricity delivery in Baghdad is a factor that I would like to measure minute by minute during the day and to do this both for the city as a whole as well as disaggregating these results by districts in the city and/or by individual power stations. Unless I get a very high resolution frequency, I won't be able to understand the frequency of or length or breadth of districts impacted by each outage. Such diagnostic capability is likely vital to figuring out where the est opportunities are for achieving higher levels of service and moving closer to fulfilling the desired demand.

Obstacles to High Frequency. On the other hand, there will be metrics such as the percentage of Iraqi members of Parliament who are living abroad where the obstacles to measuring may mean that we only get a read out on this indicator once a month. It might be nice to see how this varies day to day, but prove to be logistically impractical to get it.

Adjusting as you go along. There is no perfect frequency and there can likely be differences of opinion as to which frequency is best. The good news is that frequency can be adjusted as needed as we go along. The really important part is identifying all the important metrics and beginning the process to measure and record their values as they change over time.

Scraping Metrics - Part III: UN Report

As we mentioned in an earlier post, UN Secretary General Ban Ki-moon has recently published a quarterly report detailing the situation in Iraq from the UN's point of view.

This post continues with the idea that the news around us give us ideas that help answer the following questions:

• What are the most important indicators?
• What we must measure to form a fuller picture how things are going in Iraq?

When tackling a task like this, the idea is to be on the lookout for important factors that we haven't yet included in our growing composite list.

The Secretary General's report is a rich source for these kinds of ideas. Some of the measurable indicators that come up are named directly. In other cases, we use an idea expressed in the report as a springboard for creating a specific, measurable entity that would at least partially shed some light on how well things were going in that general area.

Thousands of Words and Nary a Picture. The report itself does not include a single trend graph which is a disappointment as the UN has a unique perspective and likely has access to key data that may not be available elsewhere. The report relies on the spoken word for conveying information about trends and therefore falls short of what its potential might have been.

Here then is the list of important UN indicators. Many of these can be profitably subject to disaggregation into Shia, Sunni, Kurd, or by location in Iraq.

1. Number of kidnappings
   
2. Oil revenues - how are these being divided today, prior to the passage of new oil revenue sharing law (by region, by ethnic category, by different government agencies)
   
3. Millions of dollars of new loans secured
4. Number of newly displaced Iraqis inside Iraq
5. Number of newly displace Iraqis who have fled to neighboring countries
6. Millions of dollars of financial assistance provided to internally displaced Iraqis
7. Millions of dollars of financial assistance provide to Iraqis who have fled to other countries
8. Number of Iraqis registered to vote
9. Number of law enforcement personnel charged with serious human rights violations
10. Number of attacks on journalists or media persons
11. Number of casualties (wounded) registered in hospitals
12. Number of families losing their breadwinner to death or incapacitating injury
    
13. Number of family members losing their breadwinner
14. Percentage of eligible children attending school (primary, secondary) (male, female)
    
15. Number of students attending college (male, female)
16. Number of college graduates
17. Number of advanced degrees awarded
18. Number of doctors completing their training
19. Number of nurses completing their training
20. Millions of dollars of Iraqi assistance to displaced persons
21. Percentage of population with safe water supplies
22. Percentage of displace persons having access to the public
23. Percentage of malnourished children
24. Additional contributions to the United Nations Development Group Iraq Trust Fund
25. Number of attacks in the International Zone (Green Zone)
26. Number of incoming rounds of mortars, rockets in the Green Zone
    
27. Number of deaths and injuries in the Green Zone from attacks
28. Number of attacks on strategic targets - e.g. bridges, major thoroughfares, checkpoints near the Green Zone, Parliament building
29. Number of attacks on infrastructure for electricity, water, oil, sewerage
30. Number of neighborhoods in Baghdad with new security outputs
31. Number of attacks on new security outposts
32. Percentage of buildings in Green Zone with hardened overhead protection capable of withstanding attack from large scale ordnance such as 107-mm and 122-mm rockets.

Imagine how much better we would understand what is actually happening in Iraq if we had a trend history and regular, moderately frequent, near real time updates for each of these factors inspired by the Secretary General's report.

Metrics inspired by the news part II - Prison Metrics

Here are some additional metrics inspired by recent news from Iraq.

This batch is based on the seed idea that what is happening in the prisons in Iraq today can shed important light that would otherwise not be visible.

1. Current prison population under Coalition control (male, female)
   
2. Current prison population under Iraqi patrol (male, female)
3. Number in prison who have not yet been charged
   
4. Number in prison who have been charged
5. Number in prison currently under trial
6. Number convicted
7. Number found not guilty and released
8. Average time from arrest to being charged
   
9. Average time from arrest to trial completion
10. Percentage of prison population who are considered insurgents
11. Prison population (Shia, Sunni, Kurd, other)
12. Number arrested per day
13. Number freed per day
14. Number in prison who are under the age of 18
15. Prison population as a percentage of maximum rated capacity
16. Number of deaths while in prison
17. Number of suicides of inmates
18. Percentage of prisoners in solitary confinement
19. Prison population disaggregated by prison location

I am not an expert on prisons, but it would seem that if we could track the indicators above, we could begin to get a sense of how this aspect of life in Iraq today was evolving. Ideally, those who are expert in understanding prisons can add their favorite and most important metrics to the mix if I have not included them.

Metric Ideas culled from the news

Here is a sampling of some important metric ideas culled from news stories over the past few days. The news stories themselves may not have actually called out the specific metrics listed. Rather they reported on some aspect that might have bearing to how well or poorly things were going on the ground in Iraq.

For example, I came across an article mentioning the idea that many Iraqi parliament members live abroad and do not physically show up for sessions. That led me to craft the first 4 metrics that might give us some sense at least of Parliament activity even if we cannot easily or directly measure their progress towards oil-revenue sharing, de-Baathification and so on.

1. Number of members of Iraqi parliament currently living aboard
2. Number of hours of parliament sessions per day
3. Number of parliament members attending each day
4. Number of parliament votes each day
5. Number of sectarian death squad killings
6. Number of sectarian attacks
   
7. Number of bodies in the street in cities like Baghdad
8. Number of attacks in al-Anbar province
9. Violence in Diyala Provinces (deaths, injuries, attacks)
   
10. Violence in Ninevah Provinces (deaths, injuries, attacks)
11. Number of suicide bombings
12. Number of suicide attacks
    
13. Number of Baghdad neighborhoods protected by local militias - Shia, Sunni, mixed
14. Number of Baghdad neighborhoods protected by coalition, Iraqi military, Iraqi police
15. Number of Baghdad neighborhoods not protected
16. Percentage of Iraqis in favor of partition of the country by Shia, Sunni, Kurd, other
    
17. Number and % of violent deaths come from people just being shot down
18. Number and % of violent deaths violent deaths from US military activities
19. Number and % of deaths from bombing Iraqi cities (deaths from aerial strikes)
20. US troop level in Baghdad
21. Baghdad morgue data on bodies received per day
22. # of attacks on Sunni Arabs by the predominantly Shiite government security forces
23. number of Iraqis displaced from their homes per month
24. Number of militias currently known
    
25. Percentage of those militias that have been disarmed
    
26. Current militia troop levels
27. Inflation rate
    
28. Oil production rate in Millions of Barrels per day
    
29. Degree to which demand for electricity outstrips supply

For some of these, we have already suggested additional metrics based on disaggregation (e.g. by reporting on totals as well as breaking down the results by ethnic groups). Other metrics listed above are also aggregates and could similarly and beneficially be disaggregated for additional insights.

In my view, all these are important and yet even though we have listed 29 indicators, this is likely just scratching the surface.

If we wish to make sense of what's going on in Iraq, we really need to be able to literally SEE the trends in everyone of these. We're struggling right now since this is just not happening.

Iraq Weekly Status Report May 30, 2007

Here are some charts taken from the Department of State's May 30th, 2007 Iraq Weekly Status Report.

This first chart covers from January 2004. It appears as if demand is rising while production is falling and cannot seem to crack the 100,000 mark.

Also notice the sharp downward spikes for the light blue daily supply data. This tells me that it would be worthwhile to be able to zoom in on the supply factor and look at how supply is changing over time but using a much higher resolution than daily. An hourly trend chart for month's worth of data, or a daily chart using a 1 minute resolution would surely reveal some insights not currently available.

Similarly, when an aggregate trend factor show such sharp variation, it is frequently the case that creating additional trend charts that dis-aggregate the data can prove most helpful in understanding more fully what is happening.


This second chart makes it clear that the Iraqi currency has strengthened relative to the dollar over the past 12 months.


This third chart clearly shows the rising trend in Iraqi Commercial Bond interest rates over the past year.

This fourth chart suffers from showing far too brief a time period of only the most recent 10 weeks. Contrast this to the Oil Production chart in the previous post that showed the past 4 years and also provide useful trend data for production from the North and from the South.


This chart also has a much short sweep of time than needed for understanding the underlying trends. The related chart in the previous post showed refinery trends going back 4 years. This chart does have the positive feature that it groups all the bars for a given type of refined product together which is an improvement over the way the bars were used in the previous post from the Reconstruction report to Congress.


It's curious to note that there are no trend charts in this report from the State Department that show trends related to the first two "key areas identified as pillars of US government policy for victory in Iraq." Namely,

1. "Defeat the terrorists and neutralize the insurgents"
2. "Transition Iraq to security self reliance."
   

The trends in these areas are however dealt with in Michael O'Hanlon's weekly report from the Brookings Institution. We will be commenting on the May 30th version of that excellent report in our next post.

Monthly trade deficit

Another great chart from Calculated Risk

You can find the full post here

Is the "Surge" working?

Here's a before and after the 'surge' graphic from this morning's New York Time article on: Patterns of War Shift in Iraq Amid Buildup of U.S. Force that sheds some light on the degree to which the "surge" is working.

Disaggregating the figures by area is helpful at clarifying better what is happening on the ground. For example, the increase in Baghdad deaths and Diyala deaths due to IED both look substantial while the drop off in total deaths in Anbar Province is also striking.

By selecting a 7 week Before Period and a 7 week After Period, this graphic sets up the possiblity of direct and straightforward Apples to Apples comparisons .

I would also have liked to see all the same key factors represented on this chart (such as Baghdad deaths by IED, Baghdad deaths by other causes, Anbar deaths by IED) also available as a week by week trend table and charts with the time frame stretching back to the beginning of the war so that the trends showing up in the current casualty levels could be put put into a broader context.

Of course, adding in other factors such as US troops wounded, Iraqi forces deaths and wounded, and Iraqi civilian deaths and wounded would give a much fuller picture of the degree to which the "surge" has so far changed things in Iraq.