CPI Month-Over-Month as the BLS Sees Things
Month Over Month Key Points
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in December on a seasonally adjusted basis after rising 0.2 percent in November
- The seasonally adjusted increase in the all items index was driven by an 8.4-percent increase in the gasoline index, which accounted for more than 60 percent of the overall increase.
- The other components of the energy index were mixed, resulting in an increase of 4.0 percent for the month.
- The food index rose in December, as both the food at home and the food away from home indexes increased 0.4 percent.
- The index for all items less food and energy increased 0.1 percent in December after rising 0.2 percent in the previous month.
- The indexes for apparel, motor vehicle insurance, new vehicles, personal care, and household furnishings and operations all rose in December.
- The indexes for used cars and trucks, recreation, and medical care were among those to decline over the month.
Year-Over-Year Key Points
- The all items index rose 1.4 percent for the 12 months ending December, a slightly larger increase than the 1.2-percent rise reported for the period ending November.
- The index for all items less food and energy rose 1.6 percent over the last 12 months, as it did in the periods ending October and November.
- The food index rose 3.9 percent over the last 12 months, while the energy index fell 7.0 percent.
What About Housing?
The BLS does not directly include home prices in the CPI. The latest Case-Shiller home price index is up 8.4% as of the latest report which is for October.
Instead of using home prices, the BLS uses Owners’ Equivalent Rent (OER).
Ask anyone looking to buy a home what inflation looks like.
Failure to properly account for housing has distorted the CPI continually from 1998 until now.
The Fed did not spot the housing bubble nor predict the Great Recession because it did not understand the asset bubble.
What About Health Care?
The BLS says the cost of medical care is up 15% from a year ago.
Ask anyone buying their own health care how accurate that is. Also ask anyone buying their own health care if it is only 6.97% of their budget as the BLS states.
What About Bubbles?
The stock market and risk tolerance is also a measure of inflation. It is nowhere to be found in the indexes.
Add it all up and the CPI is a gross distortion of reality on many fronts.
Addendum OER Procedure
The BLS publication explains How the CPI measures price change of
Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)
Housing units are not in the CPI market basket. Like most other economic series, the CPI views housing units as capital (or investment) goods and not as consumption items. Spending to purchase and improve houses and other housing units is investment and not consumption. Shelter, the service the housing units provide, is the relevant consumption item for the CPI. The cost of shelter for renter occupied housing is rent. For an owner-occupied unit, the cost of shelter is the implicit rent that owner occupants would have to pay if they were renting their homes.
The expenditure weight in the CPI market basket for Owners’ equivalent rent of
primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it
would rent for monthly, unfurnished and without utilities?”
My key objection remains. Home prices are not in the CPI and they used to be.
The BLS explains homes are a capital investment. OK fine. And the majority of people are sheltered from huge medical increases because their company picks up the tab. OK Fine.
And anyone with kids in college has their own set of problems. OK fine.
The CPI purportedly measures consumer inflation. The problem is “consumer inflation” is a very poor measure of actual “price inflation” for everyone looking to buy a home, with kids in school, or who pays their own medical insurance.
Mish
The BLS reports a rise in the CPI of four-tenths of a percent in December. Year-over-year the CPI is up 2.4%.
Th CPI chart will become very distorted to the upside this spring when COVID shutdown becomes the reference point.
Having owned a home for 35 years, if the BLS called me out of the blue and asked me, off the top of my head, to guess how much rent I would get for my house, my response would have been “I have no idea”.
I’m guessing that it’s not something that most people consider from month to month, let alone take time do the analysis and research to see generally (and accurately) where they stand. The variables relating to a correct “guess” are many, even if they were to attempt the exercise.
I think most are too busy wondering how they are going to deal with the rapidly increasing cost of health care, education and other day-to-day living expenses to worry about how much rent they can get on a house they already own.
This seems to be a fairly useless (and imprecise) process to accurately determine one of the largest components of a household’s living expenses.
Price of motor fuel up.
Consumption down.
Net? Who gives a damn?
College over for most of my kids. One 36 y.o. might go back.lol. Got that box checked, though.
Made it to Medicare. Even that damn supplement is cheaper than the private insurance I always had to buy. So check that one too.
I’m always looking to buy a house, but I do have several…so check that one.
Let the asset bubbles inflate, Mr. Powell (and Secretary Madam Yellen). Just please, please don’t let the damn things pop again on my watch.
I will devote a new post to the topic including a discussion of OER
Even if inflation rates were to stand at 10 or even 20% or more, low interest rates will continue…No way to reverse INSANITY ….NEVER ever !
Tips would do well then.
Also interesting that JPMorgan, Amazon and Berkshire Hathaway abandoned their initiative to develop better, lower cost healthcare coverage for their employees. If these titans of industry had to give up then I fear there is no hope for the rest of us. We are at the mercy of the healthcare industry and healthcare insurance companies forever. With healthcare being a basic societal need they have a captive audience that is left with no alternatives other than to suck it up and keep paying or risk personal bankruptcy. A lose lose proposition.
The present system usually leads to asset-stripping of the induvial till nothing is left.
Medical costs have gotten completely out of hand. My wife turns 65 this month and joins me on Medicare. We are both healthy, thank goodness, and not on any prescriptions. Our combined monthly Medicare and Medicare Supplemental coverage is $950 and that is with me on a high deductible plan. Hate to say but the healthcare industry will continue to jack up the cost of healthcare every year as long as the basis for individual healthcare coverage is medical insurance. Al this for a healthcare system that is not much better than some third world countries. Even the UK’s much maligned National Health Service scores higher than our ridiculously priced healthcare.
“Even the UK’s much maligned National Health Service ……”
Most people over here that use it think it’s great, it’s a very cherished service.
It is much maligned in the U.S. (I think unfairly for what it is worth).
Of course the NHS has its challenges sometimes, but by & large they do an incredible job. Every elected government is always criticised for not spending enough but that’s all part and parcel of party politics. You’d be hard pushed to find someone that would prefer an insurance based system here.
The speed with which they’re implementing the vaccine program is phenomenal..