Believe the Numbers?

Japan's Fuzzy Math and European Scare Tactics

Global Money Trends Magazine
Gary Dorsch, Editor

"If Liars can figure, then figures can lie." How should one react to Tokyo's fuzzy math, after government apparatchniks added 34 items to the Japanese consumer price index, whose prices on balance were falling, and removed 48 goods and services that were becoming more expensive? The fuzzy math produced a stunning two-thirds decline in Japan's core consumer inflation rate to 0.2% in July, from the 0.6% inflation rate reported in June, jolting Japanese interest rates.

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Tokyo's new methodology for computing the core rate of consumer inflation, included revisions for all the 2006 data, and the difference is dramatic. In the month of May for instance, the new core CPI base showed zero inflation, compared with a 0.6% annualized rate under the previous rules. If correct, the Bank of Japan made a mistake in dismantling quantitative easing in March and in raising rates in July.

In an age when governments of every political stripe distort data to promote their self interests, it's hardly surprising that the new formula for computing inflation suits the interests of Japan's LDP party. By the same token, it is entirely natural for official inflation data to be wildly at odds with the reality faced by business and consumers, and is often regarded with cynicism and disbelief....

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