- National and 10-City are Case-Shiller home price indexes.
- Prior to 1999, all the measures of inflation were approximately the same.
- OER stands for Owners' Equivalent Rent. It is the purported measure that one would pay in rent, if one rented one's own house from oneself.
- OER is the single largest item in the CPI with a weight of 24.071%
- PCE stands for Personal Consumption Expenditures. It is the Fed's preferred measure of inflation and consistently lags other measures.
- The PCE trend is amazingly consistent.
Paul Krugman 2002: "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
On Friday, the BEA released its Personal Income and Outlays report for June 2021 including an Annual Update.
- Personal income increased $26.1 billion (0.1 percent) in June.
- Disposable personal income (DPI) decreased $2.6 billion (less than 0.1 percent)
- Personal consumption expenditures(PCE) increased $155.4 billion (1.0 percent).
- Real DPI decreased 0.5 percent in June and Real PCE increased 0.5 percent
- The PCE price index increased 0.5 percent.
- Excluding food and energy, the PCE price index increased 0.4 percent
I discussed points 1-3 in The Impact on Spending of Three Rounds of Free Money is Waning
This post discusses price indexes and purported inflation.
Year-Over Year PCE
- The BEA says year-over-year PCE is 4.0%, the same year-over-year increase as in May.
- Excluding food-and energy PCE is up 3.5% from a year ago. In May, PCE excluding food and energy was up 3.4%
CPI, PCE, CSAI Percent Change From a Year Ago
- Year-Over-Year the CPI is up 5.39%
- Year-Over-Year the PCE price index is up only 3.99%
- The CSAI percentages are measures of inflation obtained by substituting year-over-year percentage increases in Case-Shiller measures for OER in the CPI.
- The CSAI National calculation is up 7.79%.
Economic illiterates (most economists and the brainwashed public) do not count housing price increases as a measure of inflation on the basis that housing is a capital expense.
Arguably, the CPI is a measure of "consumer inflation". OK but it is a very poor measure of "inflation" and that is what matters historically.
PCE is even worse.
Mish's Observations On PCE
- "The Fed's preferred measure of inflation is nearly as consistent as the returns of Bernie Madoff."
- "Excluding everything that matters, prices are falling.TM"
For further discussion of the silliness of using the CPI as a measure of inflation, please see Home Prices Rise Another 1.7% in May But Economists Say It's "Not Inflation"
Yet, in spite of excluding home prices as a measure of inflation, the Fed Says Inflation Might be Higher and More Persistent Than They Expect.
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