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<DIV><FONT color=#0000ff face=Arial size=2><SPAN class=900300403-28092000>James
- </SPAN></FONT></DIV>
<DIV><FONT color=#0000ff face=Arial size=2><SPAN
class=900300403-28092000></SPAN></FONT> </DIV>
<DIV><FONT color=#0000ff face=Arial size=2><SPAN class=900300403-28092000>The
full data are not out, but BLS already announced that the total year over year
difference is 0.1%. That was out at noon. Not much of a change. Also, the
story that BLS released -- and maybe there will be more tomorrow -- is that
the error was only in accounting for rent costs. Nothing to do with quality
adjustments et al. By the way, I've been writing about stagflation coming for
more than a year to my clients, though I expect that it will be quite benign
compared to the 1970s in my opinion and I am not 100% convinced that we get true
stagflation (as in negative GDP growth) though I think it is a
possibility. Here's the BLS press release: </SPAN></FONT></DIV>
<DIV><FONT color=#0000ff face=Arial size=2><SPAN
class=900300403-28092000></SPAN></FONT> </DIV>
<DIV><FONT color=#0000ff face=Arial size=2><SPAN class=900300403-28092000>
<TABLE border=0 cellPadding=0 cellSpacing=0 width=562>
<TBODY>
<TR>
<TD>Contact: Kathryn Hoyle<BR>
202-691-5902</TD>
<TD>For Release: Noon<BR>Wednesday, September 27, 2000</TD></TR>
<TR>
<TD colSpan=2>
<P align=center> </P>
<P align=center>- NEWS ADVISORY -</P>
<P align=center>BLS BRIEFING ON CPI REVISIONS ON SEPTEMBER 28</P>
<P>The Commissioner of the Bureau of Labor Statistics, U.S. Department of
Labor, Katharine G. Abraham, will brief reporters at 9:30 a.m. EDT on
Thursday, Sept. 28, 2000, about revisions in Consumer Price Index data for
the January-through-August 2000 period.</P>
<P>The revisions to the CPI correct an error recently discovered in the
software used to calculate the residential rent and owner's equivalent
rent components of the index. The recalculated data were evaluated in the
context of BLS guidelines for issuing corrections to previously published
CPI data. Corrected indexes will be made available on the BLS website (<A
href="http://www.bls.gov/cpihome.htm";>http://stats.bls.gov/cpihome.htm</A>)
as soon as possible after 10:00 a.m. EDT, Thursday, Sept. 28, 2000.</P>
<P>Revisions will be published for both the Consumer Price Index for All
Urban Consumers (CPI-U) and the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W) for the U.S. City Average, All Items
Index, as well as selected lower-level indexes. Although the corrections
were large enough to require re-publication, the general pattern of
consumer price behavior this year was little affected. From December 1999
to August 2000, for example, the U.S. average CPI-U rose 2.7 percent based
on corrected data, compared with 2.6 percent as originally published.</P>
<P>The briefing for media and other interested users will be in Conference
Center Rooms 1 and 2 of the Postal Square Building, 2 Massachusetts Avenue
N.E. The entrance to BLS on First Street N.E., across from the Union
Station Metro stop, must be used to reach the Conference Center on the
ground floor. Please allow time to go through security measures.
<B>Information and materials from the briefing will be embargoed until
10:00 a.m. EDT, Thursday, Sept. 28,
2000.</P></B></TD></TR></TBODY></TABLE></SPAN></FONT></DIV>
<DIV><FONT color=#0000ff face=Arial size=2><SPAN
class=900300403-28092000></SPAN></FONT> </DIV>
<DIV><FONT color=#0000ff face=Arial size=2><SPAN
class=900300403-28092000></SPAN></FONT> </DIV>
<DIV> </DIV>
<P><FONT size=2>---<BR>Steven W. Poser, President<BR>Poser Global Market
Strategies Inc.<BR><A href="http://www.poserglobal.com/";
target=_blank>http://www.poserglobal.com</A><BR>swp@xxxxxxxxxxxxxxx<BR>Tel:
201-995-0845<BR>Fax: 201-995-0846</FONT> </P>
<BLOCKQUOTE style="MARGIN-RIGHT: 0px">
<DIV align=left class=OutlookMessageHeader dir=ltr><FONT face=Tahoma
size=2>-----Original Message-----<BR><B>From:</B> listmanager@xxxxxxxxxxxxxxx
[mailto:listmanager@xxxxxxxxxxxxxxx]<B>On Behalf Of </B>James
Taylor<BR><B>Sent:</B> Wednesday, September 27, 2000 10:47 PM<BR><B>To:</B>
realtraders@xxxxxxxxxxxxxxx<BR><B>Subject:</B> [RT] Fw: Inflation (MUCH)
Higher Than Reported<BR><BR></DIV></FONT>
<DIV style="FONT: 10pt arial">
<DIV> </DIV></DIV>
<DIV><BR></DIV>
<P><FONT face=Arial size=2>September 27, 2000<B></B></FONT> <BR><B><FONT
face=Arial
size=2>
Jam is key ingredient for jelling performance preserves</FONT></B> </P>
<P><FONT face=Arial
size=2>
Overnight, the Japanese market hit a new low for the</FONT> <BR><FONT
face=Arial
size=2>
move, and our futures were pretty quiet. In the wee</FONT> <BR><FONT
face=Arial
size=2>
hours this morning, the futures staged their</FONT> <BR><FONT face=Arial
size=2>
traditional morning rally and by the time the market</FONT> <BR><FONT
face=Arial
size=2>
opened they were smoking to the upside. </FONT></P>
<P><FONT face=Arial
size=2>
What great news caused this? No, it wasn't news</FONT> <BR><FONT face=Arial
size=2>
from the auto industry as Daimler-Chrysler (DCX)</FONT> <BR><FONT face=Arial
size=2>
announced a loss. It wasn't the Internet, as Priceline</FONT> <BR><FONT
face=Arial
size=2>
(PCLN) pre-announced disappointing results -- that</FONT> <BR><FONT face=Arial
size=2>
stock was split nearly 2-for-1 the hard way, the fallout</FONT> <BR><FONT
face=Arial
size=2>
from which also put enormous pressure on Yahoo</FONT> <BR><FONT face=Arial
size=2>
(YHOO). It wasn't a rally in Microsoft (MSFT) based</FONT> <BR><FONT
face=Arial
size=2>
on the Justice Department news, as that stock was</FONT> <BR><FONT face=Arial
size=2>
down in the early going. </FONT></P>
<P><FONT face=Arial
size=2>
Buy now, ask questions never. . . The reason for today's early explosion was a
good old</FONT> <BR><FONT face=Arial
size=2>
end-of-the-quarter "bleep"-it rally, as the boys tried to jam prices higher in
marking up their</FONT> <BR><FONT face=Arial
size=2>
portfolios. This is so commonplace and so well known, it even gets described
on bubblevision. It's</FONT> <BR><FONT face=Arial
size=2>
a little bit like what Gretchen Morgenson was talking about in The New York
Times article the</FONT> <BR><FONT face=Arial
size=2>
other day, how Jonathan Lebed got himself in trouble with the SEC for doing
the same kind of</FONT> <BR><FONT face=Arial
size=2>
thing that Wall Street analysts and portfolio managers do all the time.
</FONT></P>
<P><FONT face=Arial
size=2>
Granted, this is an old refrain of mine, but there was no reason from any
fundamental standpoint</FONT> <BR><FONT face=Arial
size=2>
for the explosive rally we saw today other than it was time to mark 'em up. I
guess if I wanted to be</FONT> <BR><FONT face=Arial
size=2>
courteous I could make the case that the market has been down a bunch and
"pre-announcement</FONT> <BR><FONT face=Arial
size=2>
season" is over. That's what the bulls would say, but it's quite a reach.
</FONT></P>
<P><FONT face=Arial
size=2>
The initial rally was sold, followed by another rally that was sold. All told,
there were about five</FONT> <BR><FONT face=Arial
size=2>
rallies followed by sell-offs in the first couple of hours, but we ended up
trading down to the lows of</FONT></P>
<P><FONT face=Arial
size=2>
the day. At the lows, the S&P and the Nasdaq 100 were flat. From there,
the</FONT> <BR><FONT face=Arial
size=2>
never-say-die-mark-'em-up boys proceeded to jam the tape again. </FONT></P>
<P><FONT face=Arial
size=2>
In about half an hour we saw the Nasdaq 100 explode about 100 points back to
the highs, but the</FONT> <BR><FONT face=Arial
size=2>
S&Ps didn't quite get there. An enormous amount of energy was expended in
the first few hours.</FONT> <BR><FONT face=Arial
size=2>
Given that so many momentum types own chip stocks, it was not a great shock to
see the Sox</FONT> <BR><FONT face=Arial
size=2>
index hitching up as the sled dog du jour, up about 3 percent in the first
three hours. </FONT></P>
<P><FONT face=Arial
size=2>
They shall be redeemed. . . From there we went sideways for awhile and they
made one more</FONT> <BR><FONT face=Arial
size=2>
push higher, then the market started to leak. The "leaking" was accelerated
when a story passed</FONT> <BR><FONT face=Arial
size=2>
on Bloomberg that Janus was on pace to report a monthly outflow for the first
time in three years. If</FONT> <BR><FONT face=Arial
size=2>
a big fund group like Janus experiences outflows, that could potentially
change the psychology. I</FONT> <BR><FONT face=Arial
size=2>
have been musing that the final-hour selling in the last couple of days looked
like redemptions.</FONT> <BR><FONT face=Arial
size=2>
Folks have long ceased to worry about such things, but at some point we will
feel their force</FONT> <BR><FONT face=Arial
size=2>
again. When that begins, the market will be under relentless pressure for
quite some time. </FONT></P>
<P><FONT face=Arial
size=2>
What appears to have happened with Janus's outflows is that the painters had
their hopes</FONT> <BR><FONT face=Arial
size=2>
dashed and the tape fell apart. There were still some stocks that were green,
and some that were</FONT> <BR><FONT face=Arial
size=2>
nicely green, but by and large there was far more damage than anyone would
have expected on a</FONT> <BR><FONT face=Arial
size=2>
mark-up day like today. </FONT></P>
<P><FONT face=Arial
size=2>
You don't have to tell us twice. . . At about that same time, Dell (DELL)
announced on the tape</FONT> <BR><FONT face=Arial
size=2>
that it had initiated price cuts of 12 to 47 percent, depending on the
product. That impacted</FONT> <BR><FONT face=Arial
size=2>
Gateway (GTW) and IBM (IBM), as well. But the biggest disappointment for the
bulls certainly had</FONT> <BR><FONT face=Arial
size=2>
to be the fact that Microsoft closed right around the $60 level, basically on
its lows for the year,</FONT> <BR><FONT face=Arial
size=2>
even after getting what it wanted from the Supreme Court yesterday.
</FONT></P>
<P><FONT face=Arial
size=2>
All in all, when one connects the dots and puts a summation sign in front of
today's action, it was</FONT> <BR><FONT face=Arial
size=2>
net-net very, very ugly and ominous. I don't think I can remember a time when
we had such a brutal</FONT> <BR><FONT face=Arial
size=2>
jam like we had this morning totally fall apart like it did this afternoon.
</FONT></P>
<P><FONT face=Arial
size=2>
Away from stocks, the euro was both red and green on the day and settled
essentially unchanged.</FONT> <BR><FONT face=Arial
size=2>
Oil also changed its colors during the day and did the same, closing down
about 4 cents. Fixed</FONT> <BR><FONT face=Arial
size=2>
income was under pressure, with the long bond down about half a buck, for
reasons I'm about to</FONT> <BR><FONT face=Arial
size=2>
describe (which appear to have put a bid in under the precious metals). Gold
and silver were up a</FONT> <BR><FONT face=Arial
size=2>
percent, plus or minus. </FONT></P>
<P><FONT face=Arial
size=2>
Please, not in front of the children. . . What, might you ask, could change
the psychology and</FONT> <BR><FONT face=Arial
size=2>
knock bonds down and metals up? I know this is going to come as a shock to
regular readers, but</FONT> <BR><FONT face=Arial
size=2>
lo and grab hold, it turns out that -- maybe, just maybe -- the BLS has
understated inflation. In an</FONT> <BR><FONT face=Arial
size=2>
article in this morning's Washington Post, John Barry, who has long been
considered the source</FONT> <BR><FONT face=Arial
size=2>
that the Fed uses to ooze information into the marketplace, revealed that
inflation is actually</FONT> <BR><FONT face=Arial
size=2>
higher than what the BLS has reported. I would like to share a few paragraphs
from this very</FONT> <BR><FONT face=Arial
size=2>
important article: </FONT></P>
<P><FONT face=Arial
size=2>
Consumer price inflation has been slightly higher over the past year than
officially</FONT> <BR><FONT face=Arial
size=2>
reported because of a calculating glitch at the Bureau of Labor Statistics,
government</FONT> <BR><FONT face=Arial
size=2>
sources said. . . </FONT></P>
<P><FONT face=Arial
size=2>
BLS statisticians discovered the glitch some time ago, but it has taken quite
awhile</FONT> <BR><FONT face=Arial
size=2>
for them to re-run the mountains of price data collected each month to
determine its</FONT> <BR><FONT face=Arial
size=2>
impact on the overall index. Government sources did not disclose when the
problem</FONT> <BR><FONT face=Arial
size=2>
first began to affect the index. . . </FONT></P>
<P><FONT face=Arial
size=2>
The current problem involves the agency's effort to assess how much of the
change in</FONT> <BR><FONT face=Arial
size=2>
an item's price is due to an improvement in its quality -- for example, when
the price of</FONT> <BR><FONT face=Arial
size=2>
a certain new car is compared with last year's model of the same car.
</FONT></P>
<P><FONT face=Arial
size=2>
If the new model of an item includes improvements, such as when an option on a
new</FONT> <BR><FONT face=Arial
size=2>
car becomes standard equipment, that is taken into account in deciding how
much of</FONT> <BR><FONT face=Arial
size=2>
the price increase represents inflation and how much is a quality improvement.
</FONT></P>
<P><FONT face=Arial
size=2>
The error appears to have occurred from accidentally double-counting
some</FONT> <BR><FONT face=Arial
size=2>
allowance for quality improvements, sources said. [emphasis added] </FONT></P>
<P><FONT face=Arial
size=2>
Since there are relatively few quality adjustments for food and energy items,
the</FONT> <BR><FONT face=Arial
size=2>
upward revision is likely to affect the core portion of the CPI as much as the
overall</FONT> <BR><FONT face=Arial
size=2>
index. </FONT></P>
<P><FONT face=Arial
size=2>
Later in the day, the BLS confirmed that changes will be forthcoming. I think
this is going to be a</FONT> <BR><FONT face=Arial
size=2>
major inflection point, because it will foster a change in psychology as
people realize what a farce</FONT> <BR><FONT face=Arial
size=2>
the numbers have been. I believe most folks are not aware of the shenanigans
that Jim Grant (and</FONT> <BR><FONT face=Arial
size=2>
we) have been discussing for some time. </FONT></P>
<P><FONT face=Arial
size=2>
Folks had expected that the non-fiddled ex food and energy part of inflation
would drop down to</FONT> <BR><FONT face=Arial
size=2>
the lower level of the core rate. Instead, the core rate is going up to meet
the nonmanipulated food</FONT> <BR><FONT face=Arial
size=2>
and energy complex is. At the end of the day, it should be a catalyst for
people to open their eyes. </FONT></P>
<P><FONT face=Arial
size=2>
They must think pi is a real kick in the pants. . . This article points out a
number of things, but</FONT> <BR><FONT face=Arial
size=2>
most importantly it clearly shows the capricious and subjective nature of the
government's attempt</FONT> <BR><FONT face=Arial
size=2>
at measuring quality improvements. Calculating these indices out to one
decimal point tells one</FONT> <BR><FONT face=Arial
size=2>
nothing other than that perhaps some of the people who come up with these
numbers have a</FONT> <BR><FONT face=Arial
size=2>
sense of humor. It would be reasonable to surmise that whatever forthcoming
change is made to</FONT> <BR><FONT face=Arial
size=2>
get the numbers "more correct" could easily be wrong as well. </FONT></P>
<P><FONT face=Arial
size=2>
As we have tried to illustrate in the Inflation Chronicles, there has been a
steady supply of</FONT> <BR><FONT face=Arial
size=2>
anecdotal evidence to show that inflation is alive and well in the real world.
As we have often</FONT> <BR><FONT face=Arial
size=2>
remarked, anyone who is sentient knows that the inflation numbers are a joke.
The quality</FONT> <BR><FONT face=Arial
size=2>
improvements fall under the heading of the "hedonic price deflator," and they
are also the reason</FONT> <BR><FONT face=Arial
size=2>
that productivity numbers and GDP growth is overstated. Maybe the folks at
GrantsInvestor.com,</FONT> <BR><FONT face=Arial
size=2>
who have been spearheading the effort to get this out in the open, had a hand
in forcing the</FONT> <BR><FONT face=Arial
size=2>
government's hand. This is a victory for all of us who would like to see the
inflation statistics at</FONT> <BR><FONT face=Arial
size=2>
least approach reality. </FONT></P>
<P><FONT face=Arial
size=2>
Based on a reader's suggestion, we have decided to change the name of the
Inflation Chronicles</FONT> <BR><FONT face=Arial
size=2>
to the Stagflation Chronicles. We have shared plenty of stories about
inflation, and the last few</FONT> <BR><FONT face=Arial
size=2>
have really been more about profit and wage squeezes (and with the BLS
announcement its time</FONT> <BR><FONT face=Arial
size=2>
to "declare victory" on this subject and move on). From here on out, the
stories will be more along</FONT> <BR><FONT face=Arial
size=2>
the lines of margin squeezes, assuming we have stories to share. </FONT></P>
<P><FONT face=Arial
size=2>
Stagflation Chronicles. . . Another reader in the medical field sent this
story in about the inflation</FONT> <BR><FONT face=Arial
size=2>
squeeze related to malpractice insurance: </FONT></P>
<P><FONT face=Arial
size=2>
I'm a member of a small surgical specialty group with a fairly low risk
surgical practice.</FONT> <BR><FONT face=Arial
size=2>
Despite our excellent claims history, our malpractice premiums were just hiked
30</FONT> <BR><FONT face=Arial
size=2>
percent from $10,000 to $13,000 per physician. These become fixed costs, and
the</FONT> <BR><FONT face=Arial
size=2>
cost is borne by the physician. It's practically impossible to pass these
higher</FONT> <BR><FONT face=Arial
size=2>
malpractice costs through to the patient because the third party, health
insurance</FONT> <BR><FONT face=Arial
size=2>
companies reimbursement rates are already set, as well as the patient co-pay.
Costs</FONT> <BR><FONT face=Arial
size=2>
are rising across all aspects of health care -- get used to it! </FONT></P>
<P><FONT face=Arial
size=2>--------------------------------------------------------</FONT> </P>
<P><B><FONT face=Arial>Inflation Higher Than Reported
(washingtonpost.com)</FONT></B> <BR><FONT face=Arial size=2>By John M.
Berry</FONT> <BR><FONT face=Arial size=2>Washington Post Staff Writer</FONT>
<BR><FONT face=Arial size=2>Wednesday, September 27, 2000; Page E01
</FONT></P>
<P><FONT face=Arial size=2>Consumer price inflation has been slightly higher
over the past year than </FONT><BR><FONT face=Arial size=2>officially reported
because of a calculating glitch at the Bureau of Labor</FONT> <BR><FONT
face=Arial size=2>Statistics, government sources said. </FONT><BR><FONT
face=Arial size=2> </FONT> <BR><FONT face=Arial size=2>The bureau is
preparing to revise upward the change over the last year in </FONT><BR><FONT
face=Arial size=2>its consumer price index, the nation's most closely watched
measure of </FONT><BR><FONT face=Arial size=2>inflation and the one used by
the government to calculate cost-of-living </FONT><BR><FONT face=Arial
size=2>adjustments in Social Security payments, veterans benefits and federal
</FONT><BR><FONT face=Arial size=2>pensions.</FONT> <BR><FONT face=Arial
size=2> </FONT><BR><FONT face=Arial size=2>For the 12-month period ended
last month, consumer prices rose 3.4 </FONT><BR><FONT face=Arial
size=2>percent--partly as a result of surging energy prices--while the core
</FONT><BR><FONT face=Arial size=2>CPI, which excludes energy and food items,
rose 2.5 percent.</FONT> </P>
<P><FONT face=Arial size=2>The revision, which could be announced before the
end of this week, is </FONT><BR><FONT face=Arial size=2>likely to result in an
official inflation rate that is higher by about </FONT><BR><FONT face=Arial
size=2>0.1 to 0.3 percentage points for the past 12 months, the sources
said.</FONT> </P>
<P><FONT face=Arial size=2>A revision of this magnitude won't please either
Federal Reserve officials </FONT><BR><FONT face=Arial size=2>or investors,
because to some extent both have been unhappy with the </FONT><BR><FONT
face=Arial size=2>acceleration this year of both the CPI and the core portion
of the index.</FONT> </P>
<P><FONT face=Arial size=2>Fed policymakers are widely expected to leave their
target for short-term </FONT><BR><FONT face=Arial size=2>interest rates
unchanged when they meet next Tuesday, and the revision </FONT><BR><FONT
face=Arial size=2>probably won't affect that outcome. But it won't be welcome
news for those </FONT><BR><FONT face=Arial size=2>investors who have begun to
anticipate that the next Fed policy change would </FONT><BR><FONT face=Arial
size=2>be a rate reduction.</FONT> </P>
<P><FONT face=Arial size=2>The difference will mean a bigger January increase
in the government benefit </FONT><BR><FONT face=Arial size=2>payments received
by roughly one in five Americans.</FONT> </P>
<P><FONT face=Arial size=2>Last year, the Social Security cost-of-living
adjustment was 2.4 percent, </FONT><BR><FONT face=Arial size=2>which was
determined by the increase in the CPI average for the third quarter
</FONT><BR><FONT face=Arial size=2>of 1999 from the average for the third
quarter of 1998. The adjustment </FONT><BR><FONT face=Arial size=2>boosted the
program's average monthly benefit by $19, to $804.</FONT> </P>
<P><FONT face=Arial size=2>That meant that each increase of one-tenth of a
percentage point in the CPI </FONT><BR><FONT face=Arial size=2>was worth 79
cents a month to an average Social Security beneficiary, or </FONT><BR><FONT
face=Arial size=2>$9.49 over the course of this year.</FONT> </P>
<P><FONT face=Arial size=2>An upward revision in the CPI also will mean a bit
less federal tax revenue, </FONT><BR><FONT face=Arial size=2>and hence a
slightly smaller budget surplus, because the CPI is used to index
</FONT><BR><FONT face=Arial size=2>numerous provisions of the tax code, such
as the size of personal exemptions </FONT><BR><FONT face=Arial size=2>and the
points at which income tax brackets increase.</FONT> </P>
<P><FONT face=Arial size=2>The CPI also is used in the private sector to
adjust for inflation in a </FONT><BR><FONT face=Arial size=2>variety of ways,
including some rents and labor contracts.</FONT> </P>
<P><FONT face=Arial size=2>This will mark a break in the BLS's policy of not
revising the CPI once it </FONT><BR><FONT face=Arial size=2>has been published
because of the widespread ramifications of such a change </FONT><BR><FONT
face=Arial size=2>for both the government and private sector.</FONT> </P>
<P><FONT face=Arial size=2>When asked, Katharine G. Abraham, commissioner of
labor statistics, declined </FONT><BR><FONT face=Arial size=2>to
comment. BLS officials notified the White House of the problem earlier
</FONT><BR><FONT face=Arial size=2>this week.</FONT> </P>
<P><FONT face=Arial size=2>BLS statisticians discovered the glitch some time
ago, but it has taken quite </FONT><BR><FONT face=Arial size=2>a while for
them to rerun the mountains of price data collected each month
</FONT><BR><FONT face=Arial size=2>to determine its impact on the overall
index. Government sources did not </FONT><BR><FONT face=Arial size=2>disclose
when the problem first began to affect the index.</FONT> </P>
<P><FONT face=Arial size=2>The CPI is compiled from data on the changes in the
prices paid by consumers </FONT><BR><FONT face=Arial size=2>for a hypothetical
"market basket" of certain goods and services. The current </FONT><BR><FONT
face=Arial size=2>problem involves the agency's efforts to assess how much of
the change in an </FONT><BR><FONT face=Arial size=2>item's price is due to an
improvement in its quality--for example, when the </FONT><BR><FONT face=Arial
size=2>price of a certain new car is compared with last year's model of the
same car.</FONT> </P>
<P><FONT face=Arial size=2>If the new model of an item includes improvements,
such as when an option on a</FONT> <BR><FONT face=Arial size=2>new car has
become standard equipment, that is taken into account in deciding
</FONT><BR><FONT face=Arial size=2>how much of the price increase represents
inflation and how much is a quality </FONT><BR><FONT face=Arial
size=2>improvement.</FONT> </P>
<P><FONT face=Arial size=2>The error appears to have occurred from
accidentally double-counting some </FONT><BR><FONT face=Arial
size=2>allowances for quality improvements, sources said.</FONT> </P>
<P><FONT face=Arial size=2>Since there are relatively few quality adjustments
for food and energy items, </FONT><BR><FONT face=Arial size=2>the upward
revision is likely to affect the core portion of the CPI as much
</FONT><BR><FONT face=Arial size=2>as the overall index.</FONT> </P>
<P><FONT face=Arial size=2>Errors occasionally have been detected in the past
in some of the raw data </FONT><BR><FONT face=Arial size=2>that are used to
calculate the CPI, but apparently they have never been large </FONT><BR><FONT
face=Arial size=2>enough to affect the overall index.</FONT> </P>
<P><FONT face=Arial size=2>Economists have debated for years whether the CPI
accurately measures </FONT><BR><FONT face=Arial size=2>inflation, and whether
the BLS's methodology should be changed. Based on its </FONT><BR><FONT
face=Arial size=2>own research and recommendations from outside economists,
the BLS has made </FONT><BR><FONT face=Arial size=2>changes in recent years to
improve the CPI.</FONT> </P>
<P><FONT face=Arial size=2>Correcting the current error is a technical matter,
and will not change the </FONT><BR><FONT face=Arial size=2>BLS's overall
method or approach for making quality-improvement allowances.</FONT>
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