I am just looking at the CPI as reported by the government statisticians. If you rely on media reports, you are not getting the real story told by these numbers. Reporters are claiming that inflation is only 5 percent, and they add that even this number is overstated. Nothing to see here, move along.
John Cochrane agrees with my dismissal of the “base bias” story.
I am looking at the same numbers but taking a three-month average multiplied by 4, and using the core CPI. Such a calculation informs me that inflation is actually 8 percent.
Can we please forget about inflation, which is really just a vestige of white privilege, and focus on what really matters? The future mandate of the Fed should be about DEI and eliminating systemic racism.
https://www.wsj.com/articles/the-feds-duty-is-to-the-economy-not-equity-11623277274?st=9rk23eo8iwi662j&reflink=article_copyURL_share
Now that COVID is over, I expect a lot of pent up demand for medical services, which will no doubt increase its price. I’m kind of surprised that medical is only 6.3% of CPI-U?
Seems to me that housing, at 43% of CPI-U is the only thing that matters for that calculation.
I continue to be wary of TIPS investment because I feel like it’s the fox guarding the henhouse.
BTW, how they do Owners Equivalent Rent.
Seems very squishy to me.
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf
Why not just do the math on typical cost to carry at current 30 year mortgage rates and current prices?
Or for that matter, why not just include the direct prices of new and used houses, just as they do for new and used cars?
I get that buying a house is akin to purchasing an investment that provides a flow of housing services, but a car is the same thing, an investment that provides a flow of transportation services, and there’s no ‘owners equivalent lease’ concept for car prices.
I don’t mind adjusting the price of houses to reflect current interest rates. Obviously a home at a 5% rate and a home at a 3% rate don’t cost the same, even if the purchase price is the same. A lot of the run up in house prices doesn’t look as bad when you consider where rates are.
But still, this isn’t a hard calculation. Seems a lot easier to do that then a bunch of surveys about what rent people think they might get even though they aren’t renting.
I’d rather have the cost of the item reflected rather than having it blended with the cost of financing, but I’d prefer either to OER.
Perhaps medical has a low share of CPI because it reflects out of pocket expenses?
That would be my guess…but that makes it highly misleading.
I invite you to look at the Dallas Fed’s trimmed mean PCE inflation rate. Or the Cleveland Fed’s median CPI inflation rate.
Both of those measures remain fairly subdued, haven’t moved up much, Much lower than headline figures.
There is signal, and there is noise. A few large outliers related to pandemic distortions are just noise. (Examples of noise: airline fares, which are still deflated relative to February 2020 but are recovering. Or used car prices and new car prices, which are surging because auto manufacturing is crippled by semiconductor shortages.) Look for signal.
“No surprise, the current surge of inflation is concentrated in durables. Durables went up 3% April to May, a 36% annualized rate, on top of 3.52% March to April! The others are rising too, interestingly, but not as spectacularly. It’s also interesting that the big decline in the pandemic was among nondurables. This is all common sense. Bar and restaurant prices went down in the pandemic, less so TVs and gym equipment, and “stuff” is now really getting hard to find and to produce.”
My opinion is that inflation will be mostly driven by everything in the non-traceable sectors of the economy. Production of food and manufactured goods benefit from economies of scale, and there is only but so much demand for durable goods anyway. Services and housing on the other hand, don’t benefit nearly as much from economies of scale, if at all. So more money chasing after housing and services likely won’t be accompanied by more efficient supply, and the ramp in supply itself will likely cause prices to rise quickly. I still think that the Fed can kill all of this whenever they want to, though perhaps only at the price of a recession. But how many people don’t believe that the Fed can’t produce a recession at will?
The best indicator of inflation is that your local economist looks more than usually useless.
Yes, housing.
We could get rid of property zoning and cut inflation, or we can suffocate the whole economy and cut inflation.