Case-Shiller released its Home Price Indexes today. And to no one surprise, home prices jumped another 1.8% in May.
Case-Shiller Home Price Index Top 10
Only two cities, Chicago and Las Vegas are below their previous bubble peaks.
CS National, Top 10 Metro, CPI, OER, Primary Rent Percent Change
Case-Shiller year-over-year is through May. OER, Rent, and CPI are through June.
It’s Inflation Stupid!
Year-over-year national home prices are up 16.61%. It’s inflation stupid (and that means you, if you disagree).
I am tired of economic nonsense that home prices are a capital expense. OK, so what?
The Fed, economists in general, and economic illiterates listening to the Fed and economists bury their heads in the sand pretending that only alleged “consumer” inflation matters.
They are wrong and you are too if you believe such nonsense. The fact is speculation in assets does matter as we have seen twice (Dotcom bust and the Great Recession).
Home prices are easily measurable and there is no valid reason to exclude them from inflation indexes (yes, that means you).
You can still have your CPI if you want it, but it is actually a useless measure of inflation on many fronts.
A Better Measure of Inflation
We can calculate a better measure of “inflation” by substituting home prices for Owners’ Equivalent Rent in the CPI.
OER is the mythical price one would pay to rent one’s own house from oneself, unfurnished and without utilities.
OER is the single largest component in the CPI with a weight of 24.071%.
To appease the economic illiterates who consistently get hung up on the irrelevant word “consumer” we must not dare call the the result CPI, so instead let’s call it Case-Shiller Adjusted Inflation (CSAI).
I now label my charts as such.
CPI vs Case-Shiller Adjusted Inflation Year-Over-Year
By substituting year-over-year Case-Shiller Home Prices for OER we arrive at 7.79% inflation year-over-year vs the stated year-over-year CPI of 4.42%.
Real Interest Rates CPI vs CSAI
Real Interest Rate Calculation
To calculate Real Interest Rates we subtract the Fed Funds Rate from inflation measurements.
- The Real Interest Rate as measured by the CPI was -4.93% in May and -5.31% in June.
- The Real Interest Rates as measured by CSAI National was -7.73% in May.
Fed Promoting Speculation
The Fed is openly promoting asset speculation and the results are easily visible in home prices, Dogecoin, Bitcoin, and various Reddit stock market trades.
The Fed does not want anyone to count any of that as inflation or a result of inflation if you believe inflation is about money supply.
Regardless, it is economic nonsense to dismiss what’s happening as “not inflation” while hiding under the umbrella that home are a capital expense.
What is the Best Measure of Monetary Inflation?
For discussion of monetary inflation, please see What is the Best Measure of Monetary Inflation?
Also see my follow-up post Lacy Hunt On Debt and Friedman’s Famous Quote Regarding Inflation and Money
Finally, for a discussion of stagflation chances please see The Stagflation Threat is Very Real but Congress Holds the Key.
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