JoeWras I know. It is a crock really but we are stuck.
Yeah, you are right. I pretty much agree with you on all this, and also believe the analysts are spot on about shelter easing off later this year. I'm actually more concerned about next year due to this year's renewed rise.
But anyway, it is a "crock" because they have made it so nobody can understand it. I understand why they stopped what they were doing in the 70s and moved to this more smooth method in the 80s. But understanding it is impossible. I can only hope our government employees are doing the right thing.
Case in point. There is a blog post from BLS last year here (
https://www.bls.gov/blog/2022/measuring-changes-in-shelter-prices-in-the-consumer-price-index.htm) that is all about "measuring changes in shelter prices in the CPI". That's the title.
But man, it is so contradictory. It actually blew my assumptions about OER out of the water, so I don't want to talk about it like I know the answers, because I don't.
Let me quote some of the confusion from the above BLS blog post:
Owners’ equivalent rent is the larger of these two components, at nearly one quarter of the consumer market basket, or weight, in the CPI. It represents the implicit amount an owner of a housing unit would have to pay in rent to live in the unit, assuming it was leased instead of owned. The expenditure weight for owners’ equivalent rent in the CPI is based on a question in the Consumer Expenditure Survey. That question asks homeowners, (1)“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?” The role of this question can be easily misunderstood by even sophisticated users of BLS data. That has contributed to a common misconception: the mistaken belief that the price observations used for owners’ equivalent rent in the CPI are also from homeowner estimates of their home’s rental value. (2)In fact, the sample of prices used in the owners’ equivalent rent index comes from observations of rent collected in our monthly survey of housing prices, but with utilities and other similar charges removed.
So... Looking at "(1)" in my bolded and underlined part of the quote, I have emphasized this here in the past. As a former BLS survey participant (although not on shelter), it connected with me. These were the kind of questions we'd get. Mine were more like: "How many people do you have living with you in your home." Again, it was a bit open to interpretation.
So then they come up with "(2)", which basically invalidates "(1)", by implying that they really don't use the survey question, instead they use rental data of homes and impute the answer. So they ask the question, but don't use it and instead use actual data? What?
Actually, I'm OK if they use actual rental data instead of homeowner's guesses. And the more I dive deeply into the BLS papers, the more it looks like this is the case. That is, they actually look at homes for rent an impute OER from that. But why are all the communications on this so muddy, with this blog post being outright contradictory?
It is so unclear! And that frustrates me, because OER is a full 25% of the CPI data. That's incredible! 1/4th of the data! Yet, the BLS accuses "sophisticated" people of not understanding it.
That makes me angry. That's on them. They are not explaining things well.
