Inflation-CPI piece article

[astromeria]

Most of our parental conversation is filled with lines from classic rock lyrics and old TV shows.

Mothers and sons don't always have a lot in common, but my son & I share a love of movies and sometimes comment on life with a familiar quote...

--Faint praise: "Goood idea" followed by a cheesy smile ("Never Cry Wolf")
--Near misses: "Captain, we're out of the lane!" ("Hunt for Red October")
--Distracted by irrelevancy: "Ya gotta listen to the wind, hoss" ("Thunderheart")
--Proof: "Look sir, droids!"
--Creativity: "There are No. New. Steps!" ("Strictly Ballroom")
--Time pressure: "I give two minutes for your gallant crew." (the Star Trek movie with Christopher Lloyd)
--Disbelief: "I find your lack of faith disturbing" ("Star Wars")

Reminds me of that Star Trek:Next Gen episode featuring the people who communicate only through metaphor so the universal translator isn't helpful (Darmok)

"I won't grow up!" ("Peter Pan")

 

[laurence]

How about re-calculating the "volatile" portion of CPI by smoothing it over a 6-12 month period and then adding it back in? I understand not wanting to make the markets crazy because of a short term spike in energy due to a Hurricane, but if you take an rolling average of six months and include it with the core, that would be a more justifiable system. Let's protect ourselves from volatility, not reality.

 

[d]

no one is hiding the volatility ... it's there in CPI (including food and energy).

 

[cute fuzzy bunny]

Let's protect ourselves from volatility

I *like* volatility!

 

[d]

I *like* volatility!

it's certainly true that volatility can lead to great rewards (or disaster), but in general is leads to uncertainty and risk. those who desire to reduce that risk generally reduce their returns.  those who are willing to accept the risk, in turn receive increased returns. markets are nice like that.

 

[wabmester]

By Peter Schiff:

The "core" CPI is actually of little value since about 40% of it is comprised of rent (either actual or owner-equivalent). In the current low interest rate environment, which has drawn in an ever-widening pool of home buyers, rents are being artificially suppressed. What’s more, the proliferation of adjustable rate mortgages and no down payment loans have temporally turned many renters into buyers; fully one third of first-time homebuyers are putting zero down! As a result, the national rental vacancy rate is at a 40 year high, and rents are under pressure. Therefore, the Fed's inflationary monetary policy is paradoxically helping contain rent increases which represent 40% of the "core" CPI, while causing housing prices themselves, which are not even included in the CPI, to soar. The more inflation the Fed creates, the lower the "core" CPI. How convenient.

I had to revive this thread because something interesting is happening.   It may be true that the fed's increased liquidity put downward pressure on rents (and therefore CPI), but now the opposite is happening!

The largest increase in the CPI is now coming from the heavily-weighted owner's equivalent rent (OER) component.     As the fed raises interest rates, fewer people are able to afford a house, so there are more renters, and rents are going up!    The Fed is causing inflation by fighting inflation!

I'm sure they realize this, but I wonder what they'll do about it.    Simply ignore the increase in OER?

In any case, I read one article that suggests that this subtle effect isn't priced into the TIPS market.    The bond market is underestimating future inflation because of this, so TIPS are a bargain right now.

 

[haha]

In any case, I read one article that suggests that this subtle effect isn't priced into the TIPS market.    The bond market is underestimating future inflation because of this, so TIPS are a bargain right now.

Interesting.

Could you give a link or reference for this article?

Ha

 

[wabmester]

Time to buy Tips before price of protection goes up

The May Inflation Report: The Buzz On OER

 

[laurence]

Rents have been on the move up around here as housing prices have flattened. Makes sense to me. I have a friend renting a "suite" (2 rooms w/bathroom) in her (very large, very nice) house for $1200 right now, that's several hundred dollars more than what it would have gotten just a year ago.