5 ms·

Essentially inflation is a political measurement that drives policy decisions and that is cause for a lot of concern. The current inflationary model is mostly

Essentially inflation is a political measurement that drives policy decisions and that is cause for a lot of concern. The current inflationary model is mostly driven by salaries. Thus in the 70s unions drove up inflation due to oil shocks. The concern for me is that models do not include asset inflation for goods (housing) that most people would like to own and where there is little productivity improvement. Using an equivalent rent model ignores this preference.

alexmingoia 6y ago
CPI measures annual change in the price of goods consumed. A house is not consumed within anywhere near a year, and also has expenses. The parties in a housing sale may not be consuming the house at all, but treating it as an investment and renting it out. Stocks, investments, etc. aren’t consumables so they aren’t included either. Rent is the price of housing consumption.
rdtwo 6y ago
They do include price increase of Housing in owner equivalent rent but there are other issues with this adjustment. Also once again basket allocation is lower than it should be for rent.
- MagnumOpus 6y ago
  > once again basket allocation is lower than it should be for rent No, rent and owner's equivalent rent make up a quarter of the inflation basket - just in exact proportion to their share of aggregate consumption expenditure in the US. The San Francisco tech bro who spends 70% of his take-home on rent is not representative of the US population at large...
  - rdtwo 6y ago
    But it fails to account for property taxes which in many areas have increased dramatically.
    - eru 6y ago
      If only! Property taxes are close to free of deadweight losses. (Only the proportion of property taxes that falls on the buildings etc causes deadweight losses. The proportion that falls on the value of the land is free of deadweight losses. See Land Value Taxes.)

alexmingoia 6y ago

CPI measures annual change in the price of goods consumed. A house is not consumed within anywhere near a year, and also has expenses. The parties in a housing sale may not be consuming the house at all, but treating it as an investment and renting it out. Stocks, investments, etc. aren’t consumables so they aren’t included either. Rent is the price of housing consumption.

rdtwo 6y ago

They do include price increase of Housing in owner equivalent rent but there are other issues with this adjustment. Also once again basket allocation is lower than it should be for rent.

MagnumOpus 6y ago
> once again basket allocation is lower than it should be for rent No, rent and owner's equivalent rent make up a quarter of the inflation basket - just in exact proportion to their share of aggregate consumption expenditure in the US. The San Francisco tech bro who spends 70% of his take-home on rent is not representative of the US population at large...
- rdtwo 6y ago
  But it fails to account for property taxes which in many areas have increased dramatically.
  - eru 6y ago
    If only! Property taxes are close to free of deadweight losses. (Only the proportion of property taxes that falls on the buildings etc causes deadweight losses. The proportion that falls on the value of the land is free of deadweight losses. See Land Value Taxes.)