John Kemp at Sempra Metals notes that the Bureau of Labor Statistics does some serious smoothing of gasoline prices each spring to account for the usual surge associated with America’s driving season — from Memorial Day to Labor Day. In calculating CPI, the gasoline adjustments are substantial, with prices cut by up to 10 per cent in May and then increased them by as much as 9 per cent in Dec and Jan.
The actual gasoline price rose by 12.6 per cent between Jan and Apr, but BLS adjustments turned that into a 2.7 per cent fall.
From next month, however, the seasonal factors will become increasingly adverse. As Kemp pointed on in a note to clients on Tuesday:
Even if gasoline prices level out at the current level (about 385 cents per gallon) BLS will start to escalate them to reflect the seasonal adjustment path. By Dec, BLS will increase its recorded gasoline prices by as much as +15.5% EVEN IF THERE IS NO FURTHER RISE IN PUMP PRICES.
The increase in seasonally adjusted gasoline prices will feed through directly into a steady increase in the headline inflation rate. Gasoline prices account for around 5.5% of the total CPI. If they increase around +15.5% by the end of the year (on an adjusted basis) that will add +0.85 percentage points to the headline inflation rate taking it from +3.9% in the twelve months to Apr to as much as +4.8% in the twelve months to Dec (other things being equal).
So stand by for more benign inflation news in the short term (May’s data will be favourably adjusted) and then a delayed shock thereafter.
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