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I would say the easiest way to explain it is, as implied by the "C", that CPI is intended to track consumption. Houses aren't normally consumed. Your house a de

I would say the easiest way to explain it is, as implied by the "C", that CPI is intended to track consumption. Houses aren't normally consumed. Your house a decade from now is expected to be, more or less, the same house you purchased originally. You expect, more or less, to be able to sell it for at least as much as you paid for it originally. Whereas a consumable good, like food, is used up once you eat it and then you have to buy it again. Housing services are more like food. They are consumed. You use it up, to some meaning of use, and then you have to eventually buy it again to use it again. However, I'm not sure that's the struggle people have. From what I observe, they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables.

throwaway_1928 4y ago
> Houses aren't normally consumed. That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are.
- sokoloff 4y ago
  The monthly/annual use of a space to shelter is the service that is being consumed. The perpetual right of ownership of that space to shelter is not being consumed. I don't think the CPI is meant to capture people's perception of how expensive things are. If their perception differs from the reality of what they're consuming, it's more important for CPI to track the consumption than the perception. "The CPI is wrong because it doesn't match people's perception" doesn't make much sense to me.
- throw0101a 4y ago
  > That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are. Taken into account, at least in Canada: > In measuring changes in the cost of owned accommodation, Statistics Canada considers six essential components: mortgage interest cost; replacement cost; property taxes; homeowners’ home and mortgage insurance; maintenance and repairs; and other owned accommodation expenses. > Rather than looking at the price of purchasing a house, the idea is to treat a homeowner as if they are renting their own dwelling, and track any expenses that a landlord would normally incur. As Fred Barzyk, Director of Consumer Prices Division explains, the question we want to answer in the shelter index, is “what does it cost to run your home?" * https://www.statcan.gc.ca/en/blog/cs/shelter-cost https://www.statcan.gc.ca/en/blog/cs/shelter-cost See notes on 2021: > The owned accommodation price index (+4.1%) rose at a faster pace than the rented accommodation price index (+1.7%) in 2021. > The upkeep of a property, or the homeowners' replacement cost, was up 11.4% on an annual average basis, compared with a 2.0% increase in 2020. The homeowners' replacement cost, a key driver of owned accommodation price growth, is linked to the price of new homes. New home prices rose consistently throughout 2021. The homeowners' replacement cost increased the most in Manitoba (+17.6%), with Prince Edward Island (+14.7%), Quebec (+14.3%) and Nova Scotia (+12.1%) also recording strong annual average movements. * https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220119b-eng.htm https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220...
- randomdata 4y ago
  > greatest one time ... expense That's the problem with house prices, regardless of whether or not you think they should be included in CPI, being that the average person is likely to only buy one or two in their life, leaving very little data about how their perception has changed over time. The best reason for choosing a measure of consumables is that they are purchased frequently by most people, providing information about how perceptions are changing on a regular basis. > has the greatest impact on their perception of how expensive things are. That would be more significant if we were talking about cost of living, but since we're talking about inflation, the actual goods selected in the basket don't matter all that much. The basket just has to be large enough to filter out the noise of individual products that have increased in value at a rate faster than the currency (or vice versa). And as it pertains to Canada, housing has appeared to be especially noisy of late, making it a poor choice for tracking inflation even ignoring all of the other problems with it.
Rury 4y ago
>they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables Right. Inflation is supposed to be a measure of erosion in purchasing power. Why should we leave out durable assets (which are purchasable things) from that measure and only consider consumable things? I get that's not CPI's intended purpose, but then why do people use it for defacto inflation?
- sokoloff 4y ago
  An oil well, a farm, an ounce of gold, and a share of $AAPL are also durable assets and purchasable things. Should they be included in CPI as well?
- randomdata 4y ago
  Certainly if something is purchased infrequently or by few people it will not provide enough data to learn how about how purchasing power has eroded. Houses are a poor fit no matter how you slice it as the typical person will buy very few in their lifetime, with often decades between purchases. We like to track inflation on a monthly basis. That requires things that most people purchase on much more regular schedule to see how their behaviour is changing on a regular schedule.

throwaway_1928 4y ago

> Houses aren't normally consumed. That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are.

sokoloff 4y ago
The monthly/annual use of a space to shelter is the service that is being consumed. The perpetual right of ownership of that space to shelter is not being consumed. I don't think the CPI is meant to capture people's perception of how expensive things are. If their perception differs from the reality of what they're consuming, it's more important for CPI to track the consumption than the perception. "The CPI is wrong because it doesn't match people's perception" doesn't make much sense to me.
throw0101a 4y ago
> That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are. Taken into account, at least in Canada: > In measuring changes in the cost of owned accommodation, Statistics Canada considers six essential components: mortgage interest cost; replacement cost; property taxes; homeowners’ home and mortgage insurance; maintenance and repairs; and other owned accommodation expenses. > Rather than looking at the price of purchasing a house, the idea is to treat a homeowner as if they are renting their own dwelling, and track any expenses that a landlord would normally incur. As Fred Barzyk, Director of Consumer Prices Division explains, the question we want to answer in the shelter index, is “what does it cost to run your home?" * https://www.statcan.gc.ca/en/blog/cs/shelter-cost https://www.statcan.gc.ca/en/blog/cs/shelter-cost See notes on 2021: > The owned accommodation price index (+4.1%) rose at a faster pace than the rented accommodation price index (+1.7%) in 2021. > The upkeep of a property, or the homeowners' replacement cost, was up 11.4% on an annual average basis, compared with a 2.0% increase in 2020. The homeowners' replacement cost, a key driver of owned accommodation price growth, is linked to the price of new homes. New home prices rose consistently throughout 2021. The homeowners' replacement cost increased the most in Manitoba (+17.6%), with Prince Edward Island (+14.7%), Quebec (+14.3%) and Nova Scotia (+12.1%) also recording strong annual average movements. * https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220119b-eng.htm https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220...
randomdata 4y ago
> greatest one time ... expense That's the problem with house prices, regardless of whether or not you think they should be included in CPI, being that the average person is likely to only buy one or two in their life, leaving very little data about how their perception has changed over time. The best reason for choosing a measure of consumables is that they are purchased frequently by most people, providing information about how perceptions are changing on a regular basis. > has the greatest impact on their perception of how expensive things are. That would be more significant if we were talking about cost of living, but since we're talking about inflation, the actual goods selected in the basket don't matter all that much. The basket just has to be large enough to filter out the noise of individual products that have increased in value at a rate faster than the currency (or vice versa). And as it pertains to Canada, housing has appeared to be especially noisy of late, making it a poor choice for tracking inflation even ignoring all of the other problems with it.

Rury 4y ago

>they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables Right. Inflation is supposed to be a measure of erosion in purchasing power. Why should we leave out durable assets (which are purchasable things) from that measure and only consider consumable things? I get that's not CPI's intended purpose, but then why do people use it for defacto inflation?

sokoloff 4y ago
An oil well, a farm, an ounce of gold, and a share of $AAPL are also durable assets and purchasable things. Should they be included in CPI as well?
randomdata 4y ago
Certainly if something is purchased infrequently or by few people it will not provide enough data to learn how about how purchasing power has eroded. Houses are a poor fit no matter how you slice it as the typical person will buy very few in their lifetime, with often decades between purchases. We like to track inflation on a monthly basis. That requires things that most people purchase on much more regular schedule to see how their behaviour is changing on a regular schedule.