Monday, September 29, 2014

"Inflation Data in the U.S. Is Built Around a Survey that People Increasingly Won’t Take "

From Real Time Economics:
Economists and market participants in the U.S. like to fixate on every wiggle in consumption and inflation data. A tenth of a percentage point increase in the Consumer Price Index can spark fears that the Federal Reserve will raise interest rates, not to mention lead to repricing of the $1 trillion market in Treasury Inflation Protected Securities.

Yet the foundation of this inflation data is a Bureau of Labor Statistics survey to which people increasingly do not respond.
The Consumer Expenditures Survey is the only federal survey that documents the full range of consumers’ expenditures and incomes, and is used to determine the weights in the CPI. The survey’s data is built around an interview survey where workers from the U.S. Census Bureau ask households about their expenditures on big-ticket items, and a diary survey in which people are asked to track all their purchases over the course of two weeks.

In recent years, the response rate has gone from slow deterioration to free fall. In 2011, more than 70% of people responded to both surveys, but as of 2013 the response has dropped to 66.7% for the interview survey and 60.8% for the diary survey, both the lowest on record.

Non-response to surveys has been a growing problem in social sciences — in 2004, the Office of Management and Budget said government surveys with response rates below 80% needed to study if the lack of response was biasing the survey — and the collapsing response rate to the expenditures survey has gone far below that threshold.

Why does this matter? If drinkers, for example, refuse to take the survey (presumably they’re out at the bars when census workers stop by), then the amount of alcohol consumed by the population would appear much lower than it really is. And then if the nation was hit with a bout of beer price inflation, the effects would be missed....MORE