April 25, 2006

If everything is getting more expensive, why is the CPI inflation reading so tame?

Pure deception, hoisted off on the American people by a corrupt government. If true housing expenses were used to compute CPI, I think we'd be amazed at the double digit inflation we're suffering from today.

If rents keep going down as more and more empty and spec homes hit the market, you'll see the inflation number remaining low, when you know damn well it's flying.

Wait a minute. You mean these huge rises in housing expenses have zero effect on inflation? How is that possible? As Alan Abelson explained in a May 30, 2005 Barron's column:
Shelter, you see, which accounts for about 30% of the core CPI is measured not by the dictates of the marketplace, how much houses actually fetch when they're sold, but by a strange -- make that perverse -- yardstick called owners' equivalent rent.

Homeowners are asked how much they think they could get were they to rent their abodes. The result, as Tony Crescenzi, chief bond market strategist for Miller Tabak, deftly puts it, is that "surging housing is suppressing the CPI." Rental income, he reports, has fallen to $147.8 billion, from the peak of $186.6 billion back in April 2002.

"This weak pricing pressure in the rental market," he comments, "is weighing upon the owners' equivalent rent portion of the CPI" and, we might add, providing a distinctly distorted picture of what's happening in housing and inflation as a whole.

20 comments:

Anonymous said...

Real inflation, since about 2002 has been getting quite hot.

I now notice significant and sustained price increases on things I use and see all the time, especially food, and *insurance*.

This experience was absent during the 1990's that's for sure. Even computers are not getting cheap and powerful at the rate that they used to---except flat panel screens. (Yay!)

CPI is BS.

I think the reason is obvious.

War is inflationary: always has been, always will be.

Anonymous said...

Because it's a lie?

The feds deliberately undestate inflation numbers to keep the cost of indexed entitlement programs (Social Security, Medicare, etc.) down and to inflate the GDP numbers. They kill two birds with one stone! Since most Americans are now as dumb as rocks, they actually believe the economic B.S. that's shovelled on them from DC.

Anonymous said...

Absolutely....

If people are willing to believe the BS that comes from the NAR, then they should believe anything.

I've got some ocean front property in Arizona for sale too.....

Anonymous said...

This failure of our economic indicators to truly grasp the marketplace has to be the key underpinning of the bubble.

Bill said...

I've got some ocean front property in Arizona for sale too.....

Ocean front huh you dont say, is that the SIMPSON'S HOTEL AND RESORT :)

Anonymous said...

I was once an economist. I left the field in the great exodus of 1985. If you were in the field then you know what I am talking about. So, that's the extent of my bonfides and now you can listen to what I say with some hope that I am not FOS.
One of the great - and unexpected - changes to the "infation rate" ( not the CPI but the real inflation rate that the public responds to - either wittingly or unwittingly) was the removal of price stickers on household goods thanks to the use of laser scanners in grocery stores.

Since forever, homemakers had been seeing price fluctuations on their canned goods in their pantries. They responded to those fluctuations.
Laser scanners removed this info from their daily lives.
No info means to household budget adjustments.

In our household we track every penny spent and made on Quickbooks. It is VERY easy to see our true rate of inflation over any period of time.

I have been tracking approx. %12 per year inflation these past few years.

Anyone else do this? Your numbers?

Rob Dawg said...

The brain dead way to measure inflation: HELOCs and Auto Loans averaged minus 2%. (8%+7%)/2-2%= 5.5%

Anonymous said...

The new inflation economics started in the 1990's when they started weighing different sectors

Anonymous said...

What? More corruption in the Bush government? I'm aghast.

Anonymous said...

Past economist -

Since forever, homemakers had been seeing price fluctuations on their canned goods in their pantries. They responded to those fluctuations.
Laser scanners removed this info from their daily lives.
No info means to household budget adjustments.


The real problem is that today people payment shop instead of buy based on the total cost of an item. As prices for everything have risen payments just get streched out longer...the average person says they are paying less but in reality it's more due to higher interest charges. Oh well, at least they get a new SUV every couple years and still don't contribute to a 401k.

Anonymous said...

yeah, they're the "howmuchamonth?"
bunch.

blogger said...

uknow - the cpi number isn't a conspiracy. its the government doing what they need to to govern, pure and simple.

we cannot afford our entitlements. we cannot pay off this debt. so the government RIGHTLY is hiding the true inflation rate, especially so they don't have to do cost of living adjustments accurately. if they did, we'd go bankrupt sooner

there's nothing conspiritorial about this. it's just simple econ 101.

what is a conspiracy is the mainstream media not reporting on it. when the fed pulled M3, do you konw there was one - ONE - story in any media that day. Oh, and of course, a posting on housingpanic

Anonymous said...

Much of the inflation we experience isn't price inflation, It's producers selling goods at the same price but reducing the quantity and/or quality. In our household we call it "cheaping out" and it's happening in everything from canned soup to automobiles.

What's the real CPI rate? I'd say 10%-15% easily.

Anonymous said...

Bravo anon, who was an economist! You got it right, your number is VERY close to the exxess of the money supply FED injected into our "economy". Now, would you take on the task to explain to the General Public what inflation is? Even Keith started to grasp it when mentioned M3...

Anonymous said...

First, CPI is a steaming crock of shit to bleed the maximum work out of the wage slaves for less (real) money. Same with the flood of illegals. That's a given.

Second, thanks for allowing anonymous comments.

Third, if you can't keep this blog based on the housing bubble, can you at least keep the threads centered on finance? The politics are getting quite annoying. The whole system is bullshit, designed for the benefit of the aristocracy, and I just want to forget about it except for how to survive what's coming (oil, gold in hand, silver in hand, maybe MREs).

Fourth, anyone else notice the boost on minimum credit card payments? Cash is trash. They all of a sudden want their money NOW, before inflation eats up the value. As soon as the assholes in CONgress passed the new credit laws for their bankster masters, I decided to reduce the payments on my debt while hyperinflation eats up my balance. The debtors in Weimar Germany did well during their hyperinflation.

Bill said...

Cakins you are correct, personally I do not own a credit card have not for 9 years now but my sister does and she says just the last few months its been off the wall.

She took her taxes and paid her balance off, ..funny thing is she said it was like the credit card company was giving her a hard time because she was paying it off...strange you would think they would want to be paid.

Anonymous said...

What's coming down the pike in CPI:

http://money.cnn.com/2006/04/18/real_estate/apartment_rents_head_higher/index.htm?cnn=yes

"Rents Heading up in '06"

Apartments may get significantly more expensive to rent this year.
By Les Christie, CNNMoney.com staff writer
April 21, 2006: 12:36 PM EDT

NEW YORK (CNNMoney.com) - Apartment rents are headed up in 2006.

After a few years of little movement, residential rents are expected to climb substantially, even as home prices may finally be plateauing.

"This will be a good year for landlords," says Greg Willett, vice president for research and analysis at M/PF YieldStar, a consulting firm serving the multi-housing industry. "There will be rent growth as vacancy rates come down. Landlords feel comfortable enough now to start raising rents again."

According to Willett, whose firm tracks 57 markets, rents will likely rise between 5 percent and 6 percent in 2006.

Several factors are contributing to landlord optimism, but what they all boil down to is that more Americans are being driven into the apartment market due to the increased expense of home ownership.
-------------------------------------


So, let's see if we can figure out the government logic.

When steak gets expensive and people switch (involuntarily) to Spam(tm), that's considered a change in consumer behavior and the lower price Spam is substituted in the basket, and voila!, lower CPI!

But, when it comes to the single biggest expense people have---housing---(not for long as energy and health will outrun it)---the government entirely ignores the huge residential purchase property market which has been exploding because it's not reflected in rents. There was obviously a consumer preference change and rapidly rising prices, and yet this didn't go in to CPI and probably depressed it as rents declined.

Result: Fed pretends to see no inflation and doesn't do a thing to thwart the housing bubble.

Now, the housing bubble is imploding and we're going to get foreclosures and deflationary (or stagflationary) collapses, and what happens: whoops, look at that rental market go!

So this gets juiced in to the CPI and the Fed board of governors starts tut-tutting and sure enough, they will jack up rates just at the perfectly worst time for f@cked homedebtors.

Completely bassackwards: they proceed exactly as if rentals were more sensitive to interest rates than purchase and asset prices. D'oh!

"brilliant sir! I say, Sir Bernanke, it's a lovely day for a Guinesss!"



This may end up in textbooks in 50 years as an example of doing precisely the wrong thing for the most impeccably self-consistent and entirely foolish reasons: Hoovernomics round two. Back then, they had a better excuse as almost all these data sets didn't exist.

Anonymous said...

Inflation is nothing more than the Federal Reserve Bank printing more and more money. Inflation is up 40% since 02.

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