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>House prices aren't included and we've seen prices balloon over the last decade Depending on exactly what you mean, this is not a great criticism of the CPI.

>House prices aren't included and we've seen prices balloon over the last decade Depending on exactly what you mean, this is not a great criticism of the CPI. House prices are excluded on purpose. Housing costs are included (including for housing equivalent to what an owner owns). CPI does include housing expenses: "The CPI represents all goods and services purchased for consumption by the reference population (U or W). BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups (food and beverages, *housing*, apparel, transportation, medical care, recreation, education and communication, and other goods and services)." [1] Furthermore, it includes housing expenses for owner-occupied housing as follows: "The [owners' equivalent rent] index is designed to measure the change in the rental value of owner occupied housing change. In essence, OER measures the changes in the amount a homeowner would pay to rent, or would earn from renting, his or her home in a competitive market." [see p. 107 of [2]] As the BLS notes, the primary service provided by houses is to shelter the inhabitants. The house itself may be held as an investment. See [3] So the CPI explicitly captures the cost of providing shelter, though it excludes the investment value of the property. [1] https://www.bls.gov/cpi/questions-and-answers.htm#:~:text=BLS%20has%20classified%20all%20expenditure,and%20other%20goods%20and%20services https://www.bls.gov/cpi/questions-and-answers.htm#:~:text=BL...). [2] https://www.bls.gov/opub/hom/pdf/cpi-20180214.pdf https://www.bls.gov/opub/hom/pdf/cpi-20180214.pdf [3] https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

Infinitesimus 6y ago
Thanks for the extra context - I should have been more clear. CPI does capture OER and rental costs as you show. I get that mortgage costs and the like aren't considered as consumption ( rightly so ) but that makes the measure inaccurate when assessing prices people pay to live day to day. Rental prices are generally a more applicable indicator for most of the population as the BLS says but the rising costs of houses and mortgage costs by extension imo should be captures because it signals how money is flowing. Is there another metric perhaps that captures both consumption costs and housing beyond rent/rent equivalents?
- skybrian 6y ago
  I think what you're missing is that many people are not paying market price for housing, because they bought their houses a long time ago. If they have mortgages, they were set by the home price when they bought. CPI is an average. The people who have owned their own homes for years are dragging down the average for the cost of living. You can't get the cost of living that they have if you buy today. Averages can mislead. It's like the old joke about average income in a room when Bill Gates is in the room. By changing who is included in the average, it might be possible to construct a CPI that's more relevant to you?
  - deleted 6y ago
    [deleted]
  - perl4ever 6y ago
    If homebuyers are irrationally paying significantly more than it would cost to rent the same house, then that doesn't seem to me like a valid reason to inflate the indexes. If homebuyers push prices of housing up and that does increase rents, then it is a valid reason to adjust CPI upward, and they do, AFAIK.
    - skybrian 6y ago
      What I'm saying is that many home owners are paying significantly less than it would take to rent the same house, because they bought decades ago. Though of course there are also those who bought at high prices too. If you want to know about rents, it would make sense to just look at rents. I wonder how the housing component of CPI would look if there were a survey that was limited to renters?
      - perl4ever 6y ago
        My understanding is that the index relies on estimates of what homeowners would pay in rent for equivalent housing. If you think longtime homeowners are paying less, then substituting equivalent rent should push the CPI rate of inflation to be higher than the genuine rate. An overestimate. So you think correctly calculated inflation is less than the CPI says? I thought everybody who thinks it is inaccurate thinks it is an underestimate, that the government is covering up inflation being rather high. Also, if they just didn't survey non-renters, then the result would not include how much homeowners spend on, say, hamburgers or whatever.

Infinitesimus 6y ago

Thanks for the extra context - I should have been more clear. CPI does capture OER and rental costs as you show. I get that mortgage costs and the like aren't considered as consumption ( rightly so ) but that makes the measure inaccurate when assessing prices people pay to live day to day. Rental prices are generally a more applicable indicator for most of the population as the BLS says but the rising costs of houses and mortgage costs by extension imo should be captures because it signals how money is flowing. Is there another metric perhaps that captures both consumption costs and housing beyond rent/rent equivalents?

skybrian 6y ago
I think what you're missing is that many people are not paying market price for housing, because they bought their houses a long time ago. If they have mortgages, they were set by the home price when they bought. CPI is an average. The people who have owned their own homes for years are dragging down the average for the cost of living. You can't get the cost of living that they have if you buy today. Averages can mislead. It's like the old joke about average income in a room when Bill Gates is in the room. By changing who is included in the average, it might be possible to construct a CPI that's more relevant to you?
- deleted 6y ago
  [deleted]
- perl4ever 6y ago
  If homebuyers are irrationally paying significantly more than it would cost to rent the same house, then that doesn't seem to me like a valid reason to inflate the indexes. If homebuyers push prices of housing up and that does increase rents, then it is a valid reason to adjust CPI upward, and they do, AFAIK.
  - skybrian 6y ago
    What I'm saying is that many home owners are paying significantly less than it would take to rent the same house, because they bought decades ago. Though of course there are also those who bought at high prices too. If you want to know about rents, it would make sense to just look at rents. I wonder how the housing component of CPI would look if there were a survey that was limited to renters?
    - perl4ever 6y ago
      My understanding is that the index relies on estimates of what homeowners would pay in rent for equivalent housing. If you think longtime homeowners are paying less, then substituting equivalent rent should push the CPI rate of inflation to be higher than the genuine rate. An overestimate. So you think correctly calculated inflation is less than the CPI says? I thought everybody who thinks it is inaccurate thinks it is an underestimate, that the government is covering up inflation being rather high. Also, if they just didn't survey non-renters, then the result would not include how much homeowners spend on, say, hamburgers or whatever.