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Why the government took home prices out of its main inflation index

fullstackeconomics.com

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Re: Why the government took home prices out of its main inflation index

#21

Post by dopylitty »

thawaya3113 wrote: post #18

The big problem is people believing that there is any one such thing as inflation. There isn’t. The word inflation represents many, including wildly divergent, ideas. And many of the very different things represented by inflation serve very different purposes, and that’s why they’re changed, because different measures of inflation help measure different concepts. Core inflation is just one of many different measures…

This is a good point. The government really shouldn’t be producing a single number and saying that’s “the” inflation rate. It muddies the waters and makes it easy to think that the economy is some magic system where things just happen rather than the sum of choices by individual companies and consumers.

If OPEC decided to stop producing oil altogether you bet there would be “inflation” caused by oil prices but that doesn’t mean the FED should be goaded into making changes to policy.

Re: Why the government took home prices out of its main inflation index

#22

Post by nradov »

hnthrowaway0315 wrote: post #12

I think one should have one's own inflation index. Basically I'd layout the expenses (food, utility, mortgage, child day care, etc.) and go from there. Some expenses inflates every year (food/utility), some are fixed for 5 years and then maybe jump up/down (mortgage, depending if Fed is cutting or hiking rates).

What would I do with that data?

Re: Why the government took home prices out of its main inflation index

#23

Post by jjoonathan »

staticman2 wrote: post #16
hammock wrote: post #15

Earlier quoted context omitted.

Shadowstats.com has been tracking inflation with old methods for a long time

No it hasn't. The numbers on that site are fiction.

They look like adding a constant to the official numbers, lol.

There is plenty of genuine spirited debate to be had over the basket of goods. There is room for using one indicator over another for any given application. Even against that backdrop shadowstats is clearly just a grift.

Re: Why the government took home prices out of its main inflation index

#24

Post by nradov »

dopylitty wrote: post #21
thawaya3113 wrote: post #18

The big problem is people believing that there is any one such thing as inflation. There isn’t. The word inflation represents many, including wildly divergent, ideas. And many of the very different things represented by inflation serve very different purposes, and that’s why they’re changed, because different measures of inflation help measure different concepts. Core inflation is just one of many different measures…

This is a good point. The government really shouldn’t be producing a single number and saying that’s “the” inflation rate. It muddies the waters and makes it easy to think that the economy is some magic system where things just happen rather than the sum of choices by individual companies and consumers. If OPEC decided to stop producing oil altogether you bet there would be “inflation” caused by oil prices but that d…

The government doesn't produce a single number. The BLS produces multiple numbers and you can use whichever one fits your situation best.

Re: Why the government took home prices out of its main inflation index

#25

Post by kasey_junk »

recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

The Case Shiller index shows affordability was similar in the early 50s to now, that was the heart of the baby boom so I think we can predict that won’t be the reason people don’t start families.

The article actually mentions that on an inflation adjusted basis the monthly mortgage was the same now as in the early 80s (due to interest rate differences).

It’s basically not true that housing costs are categorically different than any other time.

Re: Why the government took home prices out of its main inflation index

#26

Post by jjoonathan »

recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

The people in charge have houses and want house prices to go up. That's the beginning, middle, and end of the thinking.

Re: Why the government took home prices out of its main inflation index

#27

Post by binarybits »

hammock wrote: post #15
gilbetron wrote: post #4

For those that only read the headline, the article is much more interesting. There's a paper that recreated what the inflation rate would have been with the old method, and it tracks the new method closely, but just has more volatility. Plus, "the government" didn't take home prices out, they just switched to a different approach to tracking them.

Shadowstats.com has been tracking inflation with old methods for a long time

OP author here. I wrote a shadowstats debunker back in November:

https://fullstackeconomics.com/no-the-real-inflation-rate-is...

tldr: they don't actually reconstruct the old methodology. They add a fudge factor based on how much they think the new methodology increases the inflation rate. And that estimate is based on a basic math error.

Re: Why the government took home prices out of its main inflation index

#28

Post by nradov »

recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

The CPI includes rent (and owner's imputed rent). No one needs to purchase real estate. That's an investment, not a living expense. Millions of people have started families in rented homes.

Re: Why the government took home prices out of its main inflation index

#29

Post by binarybits »

nradov wrote: post #24
dopylitty wrote: post #21

Earlier quoted context omitted.

This is a good point. The government really shouldn’t be producing a single number and saying that’s “the” inflation rate. It muddies the waters and makes it easy to think that the economy is some magic system where things just happen rather than the sum of choices by individual companies and consumers. If OPEC decided to stop producing oil altogether you bet there would be “inflation” caused by oil prices but that d…

The government doesn't produce a single number. The BLS produces multiple numbers and you can use whichever one fits your situation best.

And then people frequently complain about these varieties—for example, that the BLS produces a "core" version that excludes food and energy even though there's also a version with that stuff included.

Re: Why the government took home prices out of its main inflation index

#30

Post by mushbino »

kasey_junk wrote: post #25
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

The Case Shiller index shows affordability was similar in the early 50s to now, that was the heart of the baby boom so I think we can predict that won’t be the reason people don’t start families. The article actually mentions that on an inflation adjusted basis the monthly mortgage was the same now as in the early 80s (due to interest rate differences). It’s basically not true that housing costs are categorically dif…

Back when it was normal to buy a house and support a family on a single income? Nearly impossible now. Sounds like there are some serious flaws with that index.
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