Brazil Tries To Change Its CPI Measure

Posted this at LvMIC:

Brazil Changes Measure To Underscore Inflation (Print More)

Via Bloomberg Businessweek (h/t Redmond Weissenberger)

A change in the way Brazil gauges inflation will help the central bank near its targets, enabling it to keep cutting interest rates, said Guilherme Figueiredo, hedge fund director at M. Safra & Co.Figueiredo’s fund trimmed its 2012 inflation forecast to 5.35 percent from 5.65 percent, after the national statistics agency yesterday released new weightings for items in its benchmark IPCA price index, he said.

This tactic of “underscoring” the measure of inflation is yet another excuse to embolden central banks and interventionists to let loose further money printing upon the economy.  In other words, it’s another sign of failure for those who know of no other means in stimulating economic growth in order to fend off a market correction and prop up government financing.
The U.S. actually attempted the same maneuver as part of the recent charade of negotiations over the raising of the federal debt ceiling:

Aside from increased federal user fees and military spending cuts, Washington has also started buzzing about subtle but important possible changes to the cost-of-living indexes used to calculate retirement benefits and taxes.
Adjusting the consumer price index, which the Bureau of Labor Statistics uses to determine how much the cost of living goes up each year, could save hundreds of billions of dollars for the federal government. It is reportedly among the ideas being discussed during the closed-door debt ceiling negotiations, and the interest groups with the most to lose from it have already started to gear up their opposition. Changing the CPI would affect Social Security benefits and retirement payments for federal employees, as well as income taxes, but could be billed by lawmakers as a technical adjustment, not a tax hike or benefit cut. But make no mistake—a change in the CPI could affect millions of everyday Americans significantly in the pocketbook.

Many look upon the Consumer Price Index in the U.S. (running about 3.5% annually presently) as a poor measure of actual inflation.   Bill Gross, co-founder of the largest bond fund in the world known as PIMCO, once called the CPI a “haute con job.”  Economist John Williams, who runs the widely cited ShadowStats.com which measures inflation using the government’s older methodology, describes the kind of change the CPI calculation underwent in the early 1990s (my emphasis added):

In the early 1990s, press reports began surfacing as to how the CPI really was significantly overstating inflation. If only the CPI inflation rate could be reduced, it was argued, then entitlements, such as social security, would not increase as much each year, and that would help to bring the budget deficit under control. Behind this movement were financial luminaries Michael Boskin, then chief economist to the first Bush Administration, and Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System.
Although the ensuing political furor killed consideration of Congressionally mandated changes in the CPI, the BLS quietly stepped forward and began changing the system, anyway, early in the Clinton Administration.
Up until the Boskin/Greenspan agendum surfaced, the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.
The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.

Who cares if grandma’a fixed-income no longer buys her ground meat when cat food will suffice?
While such arguments are comical on the surface, the underlying rational behind attempts to underscore inflation simply give cover for more central bank easing in the end.  In regards to Brazil:

While the re-weighting of the IPCA index will help policy makers bring inflation closer to their 4.5 percent target for 2012, Figueiredo doesn’t see the changes speeding up bank President Alexandre Tombini’s policy of “moderate” interest rate cuts.The new weights “give the central bank more room to continue cutting interest rates,” Figueiredo, who manages $1.5 billion, said in a phone interview from Sao Paulo.
He called the changes in the index “legitimate” because they were based on a survey that shows adjustments in consumers’ spending patterns. “Coincidently, it took weight from items that had bigger price increases,” Figueiredo said.

Nothing like changing the rules of the game in your own favor.  As long as the government tells you prices aren’t rising, nothing to worry about here folks, move along.  You always have dog food to fall back on anyway so what are you complaining about?
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I don't normally point this stuff out, but I haven't been keeping up with watching Glee lately and I missed these two recent gems:

As I mentioned in my Mises Daily piece on Glee, the show's producers/writers really shine when doing medleys and these two are no exception.  This is especially so since Hall & Oates is one of my favorite acts (perhaps my favorite) and "I Can't Go For That" is my favorite song by them.  The new season of the show has been dragging from the few episodes I watched but if they keep up these type of performances, I will have to make more time to tune in though I am severely limited in such at this point.