Tuesday, August 27, 2013

August consumer inflation rate probably +0.1%

- by New Deal democrat

As a corollary of the theme to my reporting that the Oil choke collar is an important factor in the economy, for the last few months I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far each prediction has turned out to be within 0.1% of the actual number.

Yesterday the E.I.A. reported for the final week of August (next Monday will be September), so we can already estimate the inflation rate. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate.

In July the price of a gallon of gas was $3.59.1. This month it was $3.57.4. That is a -0.5% decline. Dividing by 10 gives us -0.05%, and adding 0.1% to 0.2% gives us +0.05% to +0.15%. Dividing by 16 gives us a -0.3% decline, and adding 0.1% to 0.2% gives us +0.07% to +1.7%.

The seasonal adjustment for August last year was -0.045%. This gives us a final seasonally adjusted inflation rate that rounds to +0.1% +/-0.1%.

That will replace last August's +0.5% inflation rate, so that the YoY inflation rate will be +1.6%. This inflation rate is subdued enough to suggest that real YoY wages have probably increased slightly in August.