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Inflation gauge may get another  decimal

The government is considering providing more information each month on its most closely watched inflation gauge as a way to dampen financial market volatility.
/ Source: The Associated Press

The government is considering providing more information each month on its most closely watched inflation gauge as a way to dampen financial market volatility.

The Bureau of Labor Statistics is exploring a change to its Consumer Price Index that would provide details on inflation out to three decimal places instead of just one decimal place currently, BLS official Patrick Jackman said Monday.

If BLS officials decide to make the change, it could take effect as soon as next year with release of the January CPI report, Jackman said.

Jackman stressed that BLS has yet to make a decision to provide the greater detail but has launched an effort to see how the figures to three decimal places could be presented in a report that is already dense with numbers.

He said that problems with displaying the more detailed figures might force a delay in the revised report until 2008.

Financial markets have been roiled in recent months by the CPI report, especially the figure on core inflation, which excludes food and energy.

The core CPI has risen by 0.3 percent in each of the past four months, a jump from the 0.1 percent and 0.2 percent readings for the previous 12 months.

That uptick in inflation pressures has raised worries on Wall Street that inflation could be getting out of control, especially after Federal Reserve Chairman Ben Bernanke noted the acceleration in the CPI price measure in a speech in June.

However, private economists argued that some of the 0.3 percent readings were overstating inflation and would have looked less worrisome if the government presented the inflation numbers out to three decimal places.

For example, an increase in core prices of 0.249 percent would round to an increase of 0.2 percent while an increase of 0.251 percent would be rounded up to 0.3 percent.

While the minor month-to-month rounding issues don’t have much impact on how inflation is reported for a longer period of time such as 12 months, the numbers do have impacts, especially in financial markets, over a shorter period of time.

Jackman said by reporting the data out to three decimal places, it would give investors and policy-makers at the Fed more information on which to make their judgments.

“People are making so much out of a one-tenth difference in the numbers. This will give them more information,” Jackman said in an interview with The Associated Press.

The issue of rounding occurs not only in figuring a price change from month to month but also in developing the various indexes that track prices. Those indexes are also rounded to one decimal place before they are used to compute percentage changes in various products.

A BLS working paper on the issue found that between 1986 and 2005, using a price index rounded to just one decimal place produced an inaccurate reading 24 percent of the time for the monthly CPI index for all goods and services and 16 percent of the time for the core CPI inflation figure which excludes energy and food.

But carrying the figures out to three decimal places reduced the inaccurate readings to less than 1 percent.