Alan Reynolds says:
The inflation of the Consumer Price Index (CPI) has been zero for two months. Over the past 12 months, household food prices have increased by 1.1 percent, while electricity prices have increased by 1 percent. Yet the headlines continue to focus on 12-month estimates of 3 percent for overall CPI and 3.3 percent for “core inflation” (minus food and energy). But there’s a big problem: That 3–3.3 percent figure doesn’t reflect the broadest measure of inflation since it’s largely controlled by shelter costs.
The Bureau of Labor Statistics’ (BLS) much-criticized estimates of rent and owner-occupier rent equivalents (the amount that no one pays) account for a third of the CPI value and more than 40 percent of the core CPI.
Reynolds points out that overestimates of shelter rates are also problematic for another reason: they miss the truth by 12 to 18 months. Of course, since it’s a long time, we don’t know what happened to shelter prices in recent months.
But without shelter prices, inflation has been low. Reynolds writes:
Here’s some good news that hasn’t been reported: Excluding shelter, CPI inflation and core inflation rose just 1.8 percent over the past 12 months and have been flat or down over the past two. (emphasis in original)
What he means, of course, is not CPI inflation and core inflation rose only 1.8 percent in the last 12 months; you mean CPI inflation and core inflation be only 1.8 percent in the last 12 months.
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