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Archive for February, 2011
Robert A. Weigand, Ph.D.
is the principal partner of Financial Analytics, LLC. Dr. Weigand has been a faculty member at Texas A&M University, the University of Colorado, and the University of South Florida. He is the author of over 45 scholarly articles and book chapters. His research has supported various innovations in the field of asset management, including Russell Investment’s CrossVol(TM) Volatility Indexes. He is also the author of Applied Equity Analysis and Portfolio Management, John Wiley and Sons, 2014. Dr. Weigand earned his Ph.D. in Financial Economics from the University of Arizona in 1993.
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Another Meaningless Number: The Energy CPI
Is there anyone left out there who still believes that officially published inflation rates do not understate actual inflation? This morning I learned that gas and oil prices have been rising faster than the energy CPI for years — a result which fails to resonate with my common sense.
The chart below was constructed using data from FRED2. I took oil and gas prices, deflated each series by the official energy CPI, and marveled at the results.
Since 1994, gas prices have risen 2.8% per year faster than the energy CPI, and oil prices have risen 9.6% per year faster. Are gas and oil prices being hedonically “adjusted” (manipulated) downwards when incorporated into the energy CPI? Or are other components of the energy CPI deemed to be “better” each year, and thus deserving of hedonic adjustments? Electricity, perhaps?