The great thing about statistics is that you can make them say pretty much whatever you want them to say.
Although good statisticians generally try to build in all kinds of safeguards to ensure that when they’re trying to draw conclusions based on data analysis, those conclusions are free of biases, that’s no good if you’re a government agency hell bent on conveying a very specific message to the general public (or to the market).
You see, goalseeked data is a key tool in the fight to “prove” that seven years of unconventional monetary policy hasn’t been for naught. After all, both Europe and Japan recently slipped back into deflation despite printing trillions in fiat money…
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...and earlier this week, Tokyo was forced to admit that despite all of the “Abenomics is working” rhetoric, the country has just entered its fifth recession in five years.
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Clearly, some statistical "massaging" is in order.
China has long been the undisputed king of manipulated economic data and earlier this year, the BEA decided it was time to take a page out of the NBS playbook. With the help of Janet Yellen's old friends at the San Francisco Fed and after an on air assist from Steve Liesman, the US government introduced the market to "residual seasonality" or, double adjusted GDP data.
In simpler terms, after seeing it work so well for years in China, the US Department of Commerce's Bureau of Economic Statistics simply replaced all of its Excel models with just one function. The following:
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And visually:
The moral of the story is that sometimes, when it's a choice between everyone realizing that the emperor has no clothes and just making up the numbers, you should just make up the numbers because if you don't, well, people may start to wonder what the point of printing trillions in fiat currency was other than to inflate the assets of the rich and exacerbate the gap between the haves and the have nots.
Sure enough, it now looks like Japan is set to follow in the footsteps of the BEA because as Reuters reports [17], when you're stuck in deflation, sometimes the best thing to do is simply omit all the things for which prices are falling from your calculations. Here's more:
The Bank of Japan will release a new set of price indicators this month that reconfigures the way price trends are measured as the central bank seeks to show the country's below-target inflation rate is due to volatile items such as energy.
Importantly, a new consumer price index (CPI) will exclude energy costs, which have been falling, but include the costs of items such as processed and imported foods, which have been rising.
See there? Eliminating Japan's dreaded "deflationary mindset" is as simple as only including those items in the CPI that are getting more expensive. Back to Reuters:
The BOJ currently uses the government's core CPI, which excludes fresh food but includes energy costs, as its key price measurement in guiding monetary policy.
With core CPI now slipping due largely to slumping oil prices, the central bank began internally calculating a new index that conveniently shows inflation exceeding 1 percent in the past few months. That index strips away volatile fresh food and energy costs, but includes processed and imported food prices, which are rising.
The BOJ said on Friday it will start publishing this month the new CPI, as well as other indicators such as one showing the ratio of goods seeing prices rise versus those that are falling, on a regular basis each month.
Obviously, this is completely ridiculous and speaks to just how desperate Japan truly is now that the time clock on failed state status [18] is about to tick under two years.
Of course you can manipulate the numbers all you like, but you can't manipulate the underlying reality and eventually, papering over the problem with artifically inflated data will cease to be a viable option once things get bad enough and Excel simply crashes under the sheer ridiculousness of what it's being asked to do.
