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ANALYSTS SAY CPI-CALCULATION ERROR WON'T DAMPEN ECONOMIC OUTLOOK

Inflation at the consumer level has crept up slightly more this year than the government previously thought because of a mistake in calculating housing costs.

But the tiny upward revision of 0.1 percentage point in the Consumer Price Index will not change the sunny outlook for the nation's economy, private economists said.

It also has not altered economists' belief that the threat of an inflation flare-up is so small that the Federal Reserve is probably finished raising interest rates for this year.

The Labor Department's Bureau of Labor Statistics said today that inflation as measured by the CPI over the first eight months of this year rose at a seasonally adjusted annual rate of 3.5 percent, rather than the 3.4 percent rate originally published.

And, the "core" rate of inflation, excluding volatile food and energy, rose by during the same period at a seasonally adjusted rate of 2.7 percent under the corrected calculation, compared with the 2.6 percent rate previously recorded.

"These changes are very, very small," said Katharine Abraham, commissioner of the Bureau of Labor Statistics.

Richard Yamarone, economist with Argus Research Corp., said the tiny revisions would not have "a material impact on the economy and it won't affect monetary policy.

In addition to serving as the government's chief gauge of inflation, the CPI is used to calculate cost-of-living adjustments in Social Security and other federal benefit payments, as well as in some private benefit plans.

The adjustment "has an effect on the benefit received by the average Social Security recipient of something under 80 cents a month, but I don't have a precise figure," Abraham said.

The revisions were being made to correct an error discovered in June. The error stemmed from incorrectly calculating components of the index that deal with housing costs. The bureau blamed software used to make the calculation.

The Federal Reserve has raised interest rates six times over the last 15 months to slow economy growth and keep inflation from escalating. Economic reports indicate that the Fed's rate increases are working, bolstering economists' predictions that the central bank will not only keep rates unchanged at their meeting Tuesday but also for the rest of this year.

Over the years, the CPI has come under criticism, with economists and others complaining that index actually overstates inflation.

Earlier this year, the Fed stopped using the CPI in its inflation forecasts. The central bank switched to an inflation gauge tied to the Gross Domestic Product, saying it was a more accurate measure of price changes at the consumer level.

Abraham said a GDP inflation gauge, called the personal consumption expenditure chain-type price index, could be affected by the tiny upward revision to the CPI. The CPI data are used in calculating that GDP inflation gauge. However, the flawed housing figures are just a small portion of that measure, so there might be no impact at all, she said.

The CPI announcement garnered close attention chiefly because while the government routinely revises major economic statistics such as gross domestic product and monthly payrolls data, it is very rare for past CPI data to be revised.

The last time Labor did so was in 1974, when it revised six months of data because of an error in the calculation of the cost of air-conditioning for used cars. It also made some revisions in 1971.

One reason the CPI is rarely revised is that unlike many other economic yardsticks, which are based on surveys of businesses, the CPI gives a monthly snapshot of prices for consumer goods. It is based on data collected by price-checkers around the country who visit shopping malls and make phone calls to gather price quotations.

News of the calculation error may turn a spotlight on lobbying efforts by private economists to get Congress to boost fund ing for statistical agencies. Officials at the agencies have been pushing for more money, arguing they need to upgrade computers that are less than state-of-the-art and develop new ways of measuring an increasingly complex U.S. economy.

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