Today Peter Coy takes on our habit of measuring inflation as the total over the past 12 months. He says this is like ignoring a football play that just happened and instead announcing only the results of the past 12 plays:
Can’t blame the government for this. The headline on the news release from the Bureau of Labor Statistics that came out on Wednesday was this: “C.P.I. for All Items Rises 0.2% in August; Shelter Up.” That’s the one-month change in the Consumer Price Index. It’s the equivalent of telling people what happened on the latest play from the line of scrimmage.
But reports about that announcement said things like this: “Inflation fell in August to 2.5 percent, down from 2.9 percent in July.” Summing up the price change over the past 12 months through August is the equivalent of summing up the total yardage over the past 12 plays.
Quite so. And here's something you might not know. The chart below shows monthly inflation over the past 24 months:¹
Housing inflation remains a problem, though it doesn't affect the two-thirds of people who own homes and only mildly affects the two-thirds of the remainder who haven't moved recently. In other words, for about 90% of Americans inflation has averaged 1.5% over the past two years.
¹It's actually a rolling average to smooth out the spikes a little bit.
"Housing inflation remains a problem, .... "
How old is the data on housing inflation that is being reported now? Paul Krugman says it is lagging data and contributes to an exaggerated inflation index in situations where there has been high inflation in the recent past.
That may be so, but there's also the fact that housing inflation has been higher than general inflation for 10 years and that appears here to stay, at least for now. So the measures of inflation should weight housing more than they do.
Why should we increase the weighting of these fictitious housing costs?
Few people pay the calculated cost of housing used in the inflation stats. Housing is highly overweighted in the usual inflation statistics.
...fictitious? You think measures of housing costs are fictitious?
WTAF?
If you understood anything about how inflation statistics are calculated, and the weight given to housing, and the proportion of expenses that housing costs are for the median household... well, you wouldn't think that any of that was fictitious, for starters.
FFS.
This is very misleading. If housing inflation is lagging data then that means that if today's inflation is overstated then earlier inflation was understated. Will Krugman tell us that the inflation peak under Biden-Harris was even higher than we realized?
Kevin's objection is also misleading. Even if people who have rental contracts do not experience housing inflation today, they will experience it later when they renew their contracts. They will have one month of insanely high inflation as all of the inflation during their contract hits them in one rent increase.
It's misleading to describe it as "housing inflation". In fact, the real cost of housing has been rising, even after appropriate adjustments for inflation.
after spending $50k on a fifth wheel, $80k on a pickup to pull it, and another $15k on wheels, lift kit, ecu flash, turbo, etc., i can barely afford alimony for both exes and new school clothes for my kids
on top of all that my trump media stock is just about worthless
wtf... i thought liberals were supposed to be sympathetic to the plight of the working man
btw... if anyone knows where i can get a good price on a ranger z520r lemme know
Sounds like not even enough left over to get the engine modified so you can be "rollin coal" at hybrid drivers and bicyclists. Damn liberals have not only driven you to near bankruptcy but also suppressed your right to "free speech".
trump decides he'd rather not be humiliated again on national television or feed the harris money beast
nytimes:
Former President Donald J. Trump declared on his social media site on Thursday that he would not debate Vice President Kamala Harris again, as her campaign said it took in $47 million in donations in the 24 hours after they met for the first time.
Mr. Trump, who has insisted that he won Tuesday night’s debate while his aides have privately acknowledged he had a rough outing, wrote on his Truth Social site that there “will be no” second debate with Ms. Harris. Minutes later, the vice president told rallygoers in Charlotte, N.C., that she and Mr. Trump “owe it to voters” to square off again.
"Housing inflation remains a problem, though it doesn't affect the two-thirds of people who own homes and only mildly affects the two-thirds of the remainder who haven't moved recently. "
Respectfully, I disagree:
- Most residential leases are 12 months. Even without moving, rent is adjusted by market factors. Further, even if a person's rent has not been adjusted, many folks are aware of market changes.
To use an analogy, most people buy a car infrequently: yet, they may well be aware that the price of a new car (home appliance, medical care etc) is significantly more than their previous purchase.
- I do not believe its accurate that a home owner is not impacted by rental inflation. Do most home owners have friends who are renters? Does increased rent not factor into demands for raises/impact their employer?
Your 2nd point appears to make Kevins argument for him.
That you dont pay housing inflation but it impacts a friend is exactly why inflation grossly overstates the impact of housing inflation. That it might impact how you feel about potential raises is also a very silly reason. Kevin is talking about how the stat is used in the inflation calculation.
The CPI is not a stat designed to capture your care and concern for a friend or your thoughts about wage negotiations, its supposed to capture costs.
jdubs - the dominate theory economics on inflation is based on expectations. Ones expectations are, clearly, colored by the experiences of others....
Inflation expectations did a very, very poor job of anticipating near and medium term inflation over the last few years. So it is not at all clear that this is meaningful.
But your logic still doesnt make sense. It is not any kind of common economic wisdom that the past cost increases for one product will cause other people who are not consuming that product to expect future inflation in a different category that they do pay for. The next leap, that this will cause actual inflation in this product is also unsupported.
I know you made all of this up, but even if we take it as an accepted fact...the 'fact' that rental cost increases will cause homeowners to pay higher costs isnt actually a sound argument as to why rental costs should be used in place of homeowner costs. If higher moon dust prices will cause inflation expectations, is that a reason to sub moon dust prices for food prices and pretend that anyone is actually paying the cost of moon dust for their food?
Theres no sense there.
Inflation is a useful statistic, but we should be able to identify its limits and not pretend its something that it isnt.
In this post: Kevin continuing to misunderstand (1) how renting works, (2) housing as a replacement good, (3) that just because someone owns a home, price and interest rate increases still impact them and can do so greatly, and (4) I'm sure more stuff but those are just the obvious howlers.
(1) The cost you're seeing there reflects actual rent (or sticker price) increases paid by actual people. You can't then say that just because people's rent usually only goes up once per year, it hasn't impacted them much. That's literally not how renting fucking works, especially outside of the very few places that have rent stabilization measures in effect. If your landlord thinks they can get +20% more than you're paying now, they're gonna ask for it. This may not apply as much to small-time landlords, but they're a tiny sliver of the market compared to the big boys. The same big boys who are being sued for extremely obvious price collusion.
(2) If home buying prices go up, it raises the ceiling on what people are willing to pay for rent. This is econ 101 stuff. Likewise, as rent goes up it raises the bar for what people are willing to pay for a mortgage. It's a feedback loop, particularly in our extreme housing shortage situation.
(3) Rapidly rising prices and/or rates can trap people in homes that they want to sell. You see this born out in lower inventory on the market when rates rise. Rising prices can also lock people out of moving when they want to because while they may have more equity in their home, there are still transaction costs that must be born and sometimes financed - and which are often based on the overall sales price. Price increases on their own benefit some homeowners, but are also "golden handcuffs" that keep others in place when they don't really want to be there.
Please stop writing about housing. You don't know what the F you're talking about.
In California the real "golden handcuff" is prop 13. We've considered selling out family house since it is just the 2 of us now, but the reality is we would be paying the same property tax for a much smaller place, so why bother with the hassle of moving?
Points 2 and 3 are both correct in spirit, but fail to address the obvious problem with using current rental rates as the cost of housing for homeowners.
Kevin is right in that recent rental rates are a very, very inaccurate way to capture the cost of housing for nearly all homeowners.
Housing shortages do impact both rentals and purchases. But it is completely wrong to state that the impact is similar and rental costs accurately reflect ownership costs.
You have also ignored that higher home prices represent an asset for current homeowners.
Point 2 is just wrong as it ignores housing assets, interest rates and actual costs for homeowners which seems too important to ignore in a discussion about actual costs for homeowners.
Point 3 has literally nothing to do with CPI.
Big misses here.
Kevin is "right" in that rental rates don't capture the housing cost for "nearly all homeowners", but that's only for people who (a) aren't renting and (b) aren't moving. While that's a significant segment (probably even a majority) of the population, it's by no means all - and the other part of the population, who are impacted by it, is also by no means an insignificant proportion. You and Kevin are quick as fuck to write off their struggles as being "fictitious." Note also that while I said "rent" as a shorthand when referring to housing costs (what's in Kevin's chart), I used it in the broader meaning of what a household's housing payment is (which is what's in the chart), rather than explicitly and only capital-r Rent. That you didn't understand this reveals your apparent ignorance on the topic.
"Housing shortages do impact both rentals and purchases. But it is completely wrong to state that the impact is similar and rental costs accurately reflect ownership costs. "
WTF are you on about here? I said no such thing. Read it again, and go learn about what replacement goods are.
"You have also ignored that higher home prices represent an asset for current homeowners."
I explicitly addressed this (in brief). Read it again, and again - go learn about what replacement goods are, as well as inelastic demand, apparently. This is really simple shit. Don't attempt to call me out on being wrong without demonstrating that you have any idea what the fuck you're talking about.
Big swings and misses from you, bub. Get your eyes checked. Don't forget to check for motivated reasoning while you're at it.