More Businesses Expect to Raise Prices in Coming Months

A growing number of U.S. businesses expect to raise prices in the coming months, according to a new survey by the National Association for Business Economics.

About 43% of companies plan to raise prices in the first three months of 2014, far more than the 20% that said they actually did raise prices in last year’s fourth quarter. Just over half — 56% — expect prices to stay flat and about 2% expect them to fall.

The NABE survey, conducted Dec. 19 to Jan. 6 and released Monday, is based on responses from 64 economists at U.S. companies and trade groups.

Common Misconceptions about the Consumer Price Index: Questions and Answers.
When the cost of food rises, does the CPI assume that consumers switch to less desired foods, such as substituting hamburger for steak?
No. In January 1999, the BLS began using a geometric mean formula in the CPI that reflects the fact that consumers shift their purchases toward products that have fallen in relative price. Some critics charge that by reflecting consumer substitution the BLS is subtracting from the CPI a certain amount of inflation that consumers can "live with" by reducing their standard of living. This is incorrect: the CPI's objective is to calculate the change in the amount consumers need to spend to maintain a constant level of satisfaction.
Specifically, in constructing the "headline" CPI-U and CPI-W, the BLS is not assuming that consumers substitute hamburgers for steak. Substitution is only assumed to occur within basic CPI index categories, such as among types of ground beef in Chicago. Hamburger and steak are in different CPI item categories, so no substitution between them is built into the CPI-U or CPI-W.
Furthermore, the CPI doesn't implicitly assume that consumers always substitute toward the less desirable good. Within the beef steaks item category, for example, the assumption is that consumers on average would move up from flank steak to filet mignon if the price of flank steak rose by a greater amount (or fell by less) than filet mignon prices. If both types of beef steak rose in price by the same amount, the geometric mean would assume no substitution.

This is what I just read at the BLS website about the CPI:

How are CPI prices collected and reviewed?

Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors’ offices, all over the United States, to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants record the prices of about 80,000 items each month, representing a scientifically selected sample of the prices paid by consumers for goods and services purchased.

During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of ten when they previously were sold by the dozen) of the good or service since the last time prices were collected, the economic assistant selects a new item or records the quality change in the current item.

The recorded information is sent to the national office of BLS, where commodity specialists who have detailed knowledge about the particular goods or services priced review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments, which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item’s features or quality. Thus, commodity specialists strive to prevent changes in the quality of items from affecting the CPI’s measurement of price change.
How is the CPI calculated?

The CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selected the urban areas from which data on prices were collected and chose the housing units within each area that were eligible for use in the shelter component of the CPI. The Census of Population also provided data on the number of consumers represented by each area selected as a CPI price collection area. Next, another sample (of about 14,500 families each year) served as the basis for a Point-of-Purchase Survey that identified the places where households purchased various types of goods and services. More.

They state that they take changes in size and quality into account as well as using statistical models to account for changes in feature/quality of an item: “These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments, which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item’s features or quality.”

Excuse me if I don’t trust the veracity of a government agency to “strive to prevent changes in quality from effecting the CPI”. I’m not sure I buy that they don’t do this and don’t cook the books - you know, in light of everything else they outright lie about.

I will keep looking, but there’s your first clue that they are at least meddling with things.

Interesting. The citations he uses in the article seem valid and he gores both sides of the aisles’ oxen, so it seems fairly even-handed in that regard.

At any rate, he claims they (the BLS) was under pressure from Greenspan and Boysin (sp) to use a variable basket of goods back in the 80’s, then did not go that route under Clinton, but started to use geometric weighting, which in turn understates real inflation based on CPI numbers by about 7% (essentially the same effect or worse that using a variable basket of goods). IOW, gas goes up 10 cents per gallon because of additives mandates, but because you enjoy cleaner air as a result, you as a consumer get a net benefit and inflation goes down based on that metric.

"Comment #18 paid $4.35 for diesel today.

That almost makes it worthwhile to buy a diesel generator and heat electrically."

Sure. Some of the cheap 6hp and 10hp engines go further on a gallon of fuel than equivalent gassers (~ 9-13hp) with generator heads to match. It would at least be a good setup for thawing plumbing or other quick tasks (needs special installation considerations with excellent protection from moisture, good clearance from items not fireproof, checking while running, etc.).

Here's a great way for avoiding propane costs for places with many sun days in a year.

$2K Solar Space + Water Heating -- One Simple DIY System
http://www.builditsolar.com/Projects/SpaceHeating/DHWplusSpace/Main.htm

That can be modified in various ways, and there are some other good designs at the site.

"In theory, “fracking” is supposed to recover significant amounts of natural gas liquids like propane."

Yes, for a short while in each location, while oil prices are up enough.

"I wonder where all that surplus has gone?"

Much of it was exported. Now propane is up 50%, even in parts of the West, where temperatures are much warmer than usual. I paid that price a few days ago.

"Consumed by the frigid temperatures, I guess."

Some of it, yes. There was a published claim that propane was used in the fall to dry out large quantities of wet corn.

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