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Have you peeled back the categories measured by the 8% inflation? This is stupid for me to say but, for example... Used car prices factor into that 8% number. B

Have you peeled back the categories measured by the 8% inflation? This is stupid for me to say but, for example... Used car prices factor into that 8% number. But if you aren't shopping for a used car... it doesn't really affect you, right? Housing affects mostly everybody. Same with energy. I don't truly understand the weighting or everything that goes into the 8% CPI getting tossed around and I understand that it comes out to "on average as a whole, you as a consumer are most likely seeing a roughly 8% increase in cost" but I wonder if it is worth calling out that "actual personally perceived inflation" might be less (or more) than 8% My rent hasn't gone up, I haven't bought a different (new or used) car. Gas is more expensive surely but I think that's an extra $40/mo for me or so. I think Chipotle bowls cost about $3 more now... Not exactly life changing?

adam_arthur 5y ago
National market rents are up ~20% https://www.apartmentlist.com/research/national-rent-data https://www.apartmentlist.com/research/national-rent-data Miami is up something absurd like 40% https://theshaderoom.com/major-u-s-cities-experience-drastic-increase-in-rent-prices-miami-metro-area-sees-almost-50-percent-rise/ https://theshaderoom.com/major-u-s-cities-experience-drastic... CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. Using the same formula as was used in the 70s would produce double digit numbers.
- gruez 5y ago
  >CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. >Using the same formula as was used in the 70s would produce double digit numbers. Can you elaborate on this? When and what was the methodology changed?
  - adam_arthur 5y ago
    On point one, CPI uses a combination of "owners equivalent rents" and more traditional rent measures. Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. On top of this, CPI includes rent controlled units, below market rent units etc. In some sense this is "correct" because it reflects what people are paying... But the whole value of CPI is to be a forecasting tool. Using lagging metrics is bad design imo. Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. To your second question, the biggest change is that CPI used to use home prices rather than the OER measure. That metric would show 15-20% rather than the 5% we get from their current formula. Given that the shelter component is the biggest weight in the CPI, it would shift the number up a few points.
    - gruez 5y ago
      >But the whole value of CPI is to be a forecasting tool Forecasting tool for what? Prices? Everything about the CPI is about measuring price changes that already occurred, not to forecast future price rises. If the price of widget goes up 10% year after year, that's all CPI is going to report. It's not going to report what the price of widgets are 10 years from now. If you want inflation forecasts, you look at TIPS spreads or the price of various swaps. Once you understand that, most of the measurement choices make sense. >Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. That's fine because they're essentially insulated from the housing market, so the price they pay is effectively fixed for decades. >But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. >Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. Again, also fine because the point of CPI is to measure the cost of living for americans, and the cost of living for americans is largely fixed months in the past (or for homeowners, decades in the past). That said, I do think only updating 1/6 of the housing stock is a bit shady because it basically applies the lagged measure twice.
umeshunni 5y ago
> Housing affects mostly everybody. Housing mostly only affects renters (~40% of the market) and is also not evenly distributed geographically. While rents in Miami might spike 40% in a year, that affects only (0.4 * 900K)/100M of households in the US.
- MuffinFlavored 5y ago
  Where'd you get the 900k figure?

adam_arthur 5y ago

National market rents are up ~20% https://www.apartmentlist.com/research/national-rent-data https://www.apartmentlist.com/research/national-rent-data Miami is up something absurd like 40% https://theshaderoom.com/major-u-s-cities-experience-drastic-increase-in-rent-prices-miami-metro-area-sees-almost-50-percent-rise/ https://theshaderoom.com/major-u-s-cities-experience-drastic... CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. Using the same formula as was used in the 70s would produce double digit numbers.

gruez 5y ago
>CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. >Using the same formula as was used in the 70s would produce double digit numbers. Can you elaborate on this? When and what was the methodology changed?
- adam_arthur 5y ago
  On point one, CPI uses a combination of "owners equivalent rents" and more traditional rent measures. Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. On top of this, CPI includes rent controlled units, below market rent units etc. In some sense this is "correct" because it reflects what people are paying... But the whole value of CPI is to be a forecasting tool. Using lagging metrics is bad design imo. Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. To your second question, the biggest change is that CPI used to use home prices rather than the OER measure. That metric would show 15-20% rather than the 5% we get from their current formula. Given that the shelter component is the biggest weight in the CPI, it would shift the number up a few points.
  - gruez 5y ago
    >But the whole value of CPI is to be a forecasting tool Forecasting tool for what? Prices? Everything about the CPI is about measuring price changes that already occurred, not to forecast future price rises. If the price of widget goes up 10% year after year, that's all CPI is going to report. It's not going to report what the price of widgets are 10 years from now. If you want inflation forecasts, you look at TIPS spreads or the price of various swaps. Once you understand that, most of the measurement choices make sense. >Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. That's fine because they're essentially insulated from the housing market, so the price they pay is effectively fixed for decades. >But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. >Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. Again, also fine because the point of CPI is to measure the cost of living for americans, and the cost of living for americans is largely fixed months in the past (or for homeowners, decades in the past). That said, I do think only updating 1/6 of the housing stock is a bit shady because it basically applies the lagged measure twice.

umeshunni 5y ago

> Housing affects mostly everybody. Housing mostly only affects renters (~40% of the market) and is also not evenly distributed geographically. While rents in Miami might spike 40% in a year, that affects only (0.4 * 900K)/100M of households in the US.

MuffinFlavored 5y ago
Where'd you get the 900k figure?