Again with the CPI Games?

They did it again.  The EIA just reported that the average price of regular gasoline for the month of November was 2.474.  This is all well and good, except for the fact that gasoline only sold for 2.474 one day during the month of November – the 1st.

Why the charade?  Energy is one of the most volatile components of CPI.  The Fed ignores it for many of its economic assessments.  But, for consumers, it’s a very real and unavoidable expense.  It shows up in everything from the cost of heating your home and driving your car to the price of groceries and manufactured goods.

By using 2.474 as the average price of gasoline, the YoY increase from Nov 2016’s average price of 2.105 was 17.5%.  Had the actual average price been used, instead, the annual increase would have been 20.3%. And, if Nov 2016’s average price hadn’t been artificially inflated by the Nov 1 Colonial Gas Line explosion (the yellow arrow below), the YoY increase would have been even higher.It doesn’t seem like a huge difference, but it matters.  Note, for instance, that Feb 2017’s 32% YoY increase in gasoline correlated with the highest CPI print in recent years: 2.7%.

In October, when the EIA reported an annual gas price increase of 11.1%, the BLS reported an increase of 10.8%.  Fuel oil and gasoline registered the biggest price increase of any CPI component.  But, by understating the actual price increase, reported CPI was limited to 2%.

As we’ve discussed many times, central bankers talk a good game when it comes to inflation.  For all their bellyaching about wanting higher inflation, they know full well that the resulting cost of living increases and higher interest rates would simply be unaffordable for a country that can’t even make ends meet with ZIRP (and, a tax cut in the works.)

So, they continue to walk this fine line.  Between errant calculations and periodic changes in how inflation is measured, they’ve managed to keep the headline number low enough. But, higher oil and gas prices — which keep algos happy and stocks on the rise — can result in rather inconvenient inflation.  They can try to crash oil prices, again.  But, that almost blew up the oil industry.

And, with the end of the year around the corner, they have to worry about tanking the stock market.  Instead, they’re using falsified data to sell investors on the notion that inflation is non-existent or, to use their favorite term, “transitory.”

Now, for a few charts and our new price targets for CL and RB.

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