What is the BLS really measuring?
Today the BLS reported the CPI was up 2.4 percent from a year ago.
A reader commented “I will question anyone to calculate his or her own inflation rate and confirm that is similar to what the government indicates.“
Inflation is Personal
I suspect we beat the reported percentages using BLS weights because we own our own home free and clear, I am on Medicare, and I am an extremely good food shopper with a decent freezer.
I buy what is on sale and freeze it. Alberson’s has 10 percent off on the first Wednesday of every month for seniors. I save an additional 10 percent on those days. If you don’t have a freezer and don’t do what I suggest you are making a huge mistake.
We have zero education expenses other than an internet package that the BLS lumps in with education. I hardly ever buy clothes and when I do it’s typically a sale.
Moreover, Owner’s Equivalent Rent (OER) does not realistically apply to home owners and that is a whopping 35.45 percent of the CPI.
OER is the price one would pay to rent their own home, unfurnished, without utilities. OER rose 0.27 percent in May.
Nobody pays OER. Those with a mortgage pay a fixed amount every month. Many argue that because the mortgage payment is constant, the monthly increase is zero.
However, the BLS does not put home prices in the CPI on the basis homes are a capital expense, not a consumer expense.
So what? Does inflation matter or just consumer inflation?
Tell anyone looking to buy a home, particularly zoomers and millennials looking to buy their first home, that inflation is 2.4 percent and they will think you are bat-shit crazy.
According to Case-Shiller, Home prices are up 50.6 percent since January of 2020.
Because the Fed has a myopic eye on consumer inflation instead of all inflation it has sponsored bubbles of increasing amplitude over time.
Ignoring home price inflation as irrelevant is a fatal flaw in the CPI. And that flaw is compounded by those who pay their own insurance, those with kids in college, and especially those who pay half of their income in rent, weighted at 7.46 percent.
For those who do rent, the weight of 7.46 percent is best views as a stale joke warmed over.
Anyone who is on Medicare and owns their own home free and clear probably comes close to the reported CPI percentage. And those in that group who also don’t have a car likely beat the CPI handily, especially if they are good shoppers and don’t eat out much.
Using the CPI weights, I suspect I come in better than the CPI because of careful shopping.
But my weight is nothing like what the BLS assumes. My personal weight would be Medicare, home insurance, car insurance, food, and utilities.
So yeah, it’s totally F’d up, in many ways.
I have repeatedly put it this way: Inflation matters, not just alleged consumer inflation. And that is a major error by the Fed which has sponsored numerous economic bubbles as a result.
A Good CPI Report in May Is Even Better than it Looks
Earlier today, I posted A Good CPI Report in May Is Even Better than it Looks
Carried to a second decimal place, the CPI is better than reported this month.
However, I also had this caution: The report was not all good, especially medical care and insurance.
The upcoming PCE price report (the Fed’s preferred measure of inflation) may be worse than expected because it overweighs medical care and insurance relative to the CPI which overweighs shelter.
So, despite being better than expected, my comment “It’s totally F’d up,” still applies.
Those who complain the CPI is overstated because of OER are clueless about what inflation is.
The Fed Uncertainty Principle
Please consider The Fed Uncertainty Principle written April 3, 2008 before the collapse of Lehman Brothers and Bear Stearns.
Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self-reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication, there would not be observer/participant feedback loops either.
Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
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May 6, 2025: Gold Soars to Another New High, What’s the Message?
There are three messages. Do you see them?
To repeat: Inflation matters, not just alleged consumer inflation. And that is a major error by the Fed which has sponsored numerous economic bubbles as a result.
My finances have been in a recession for much of my adult life, but recently I have become a millionaire due to inflation.
Mish, I totally agree on your food shopping suggestion. I see people buying the 1 pound ground beef packages all of the time. Right next to those 1 pound packages is a 5-6 pound package that is often $1 per pound, or more, cheaper. Wait for a sale on those big packages and it’s even cheaper.
I suspect what people do is to simply look at the total price on the package, and not the price per pound/ounce/gallon/etc. The latter is the price I use when I shop.
Just a question (not political) … you say that mortgage is a fixed amount. Does CPI focus purely on Principal and interest? I ask because my insurance and taxes have gone up markedly (on numerous houses as I am a real estate investor). So if CPI includes all of PITI … then my mortgages are not fixed. On the one house where I do escrow … my payment tends to go up each year … but all due to escrow. On the others where I pay taxes and insurance separately … it is obvious to see the impacts. I DO realize that much of this is because my houses have appreciated and cost of repairs (most of which I still do myself … but I still have to buy supplies and tools) have gone up. But these make a full mortgage payment not be as fixed as I would imagine. Not sure if CPI captures this.
Inflation is a function of its “base effects”.
Disinflation feels good, but I am worried.
I was told that low inflation equals to catastrophe, by the experts.
/s
“The Fed has no idea where interest rates should be. Only a free market does.”
Soooo TRUE!
The Fed should only stick to being the dealer of last resort to help mitigate financial crises, but the mandate to control inflation is 100% bogus.
A) The Fed has no idea what it is doing.
B) Whatever the Fed is doing, is based on academic theories that are worthless.
Finally, monetary policy by the Fed is like 19th century medicine: applying leeches to remove an infection when in fact weakening the blood that is trying to fight the infection. Rising rates to tame inflation is equivalent to making expensive stuff even more expensive. Wouldn’t it be better to let high prices be the cure for high prices?
All my groceries are a little down (eggs, milk, and some meats are way down), except coffee. Coffee is massively up.
Both electric and gas are down (especially electric, I expected it higher).
Car gasoline has been relatively stable for weeks with very slightly upward trends, it’s still expensive considering the distances Americans drive.
And I wish I were younger so I’d have something better to do… 🙂
—-
PS. I have to add, the one thing I really hate is the car insurance bill. Although “per month” the increase is not dramatic, it pisses me off how much they charge for a clean driver’s record on a small car.
Try caffeine pills instead of coffee. Very cheap! Works the same.
I didn’t know they existed.
They are usually called something like Stay Awake or similar. They have 200mg of caffeine, which is the supposed amount in a strong cup of coffee. I cut them in half or quarters.
See this search:
https://www.google.com/search?q=stay+awake+pills
Social security COLA was 3.2% in 2024, which was based on the CPI from late 2022 to late 2023. That caused a bit of shock to most people, because inflation was always in the headlines throughout that period.
The SS COLA for 2025 was even lower at 2.5%. I noted before it came out that people were going to be surprised at how low it was going to be. It came in higher than I predicted.
If the SS COLA were calculated today based on the last 3 months of data, it would be 2.15%.
Besides insurance costs, my food bill (all at home, no eating out) has almost doubled in the past three years, and my electric bill (used very sparingly) has also almost doubled in the same time. Now we are being told electricity is going up 20% more this month. The Fed is measuring fairy dust.
6-month report to this day: Groceries down here (Cook county Illinois), more down than I expected. Except coffee (way up!). Gasoline stable (still expensive). Heating gas down. Electricity feels way down lately on the bills (someone’s doing something right in Illinois). Car insurance scandalously expensive.
John Williams / Shadow stats. He still calculates inflation the way gov did in the 80sand 90s before they started monkeying around with the calculation for political reasons.
Food, home, auto insurance, taxes, health insurance, and even Medicare parts B and D have all increased substantially. Our home has no mortgage, but repairs are needed, and the cost increases, too.
I live in Colorado, and it was once a relatively inexpensive place. But the last ten years have substantially caused us to be compared to California costs.
For us, costs have increased far above the propaganda of two or three percent. Home insurance alone has doubled and is on the way to triple, not to mention auto insurance.
Theres nowhere to run Phil. Eventually you have to pay for what you use.
The point is the lying government numbers. The mismanagement is so atrocious that the government couldn’t run a lemonade stand.
I have been doing some areas of my house over, and I must say, that the cost for an Electrician ($160 Hr) and Plumber ($120 Hr) have gone crazy.
I have done work a few times over the last several yrs, but my first taste in say 4 or 5 yrs astounded me! I only decided to do 1 of the 2 projects as a result.
Country living, so no City Cost here…
How about the cost get your car repaired? Around $180-$220/flat rate hr for independent garages in my area with dealer charges in the $300-$400 range. These numbers are criminal!
Those numbers are market-based. The baby boomers got used to living for near-free. The boomers left behind nothing but debt for the millennials. And the millennials want their money now …
Try a mobile mechanic. Rates are often half of those you are quoting.
Most prefer you buy the parts yourself and they just come to your place and install. This also helps keep costs down for you since you can source parts anywhere at a cheap price.
You wont be able to flee life costs for long Stu. Even in the muckety marshlands of Mississippi, eventually they will pay the same prices as in the city. A Phoenix cop costs the same as a Chicago cop now. All those teachers working for peanuts in Kentucky are getting a little tired of being used as slaves and paid $40k. And all the nuns who worked for free teaching kids are long gone …
Funny… KY Teachers Aka Slaves 40K a year; NOT. also direct from KY ed
web site; reading/writing/math @ 37% competency; this as a base line
is FAILING
By 2030,those plumbers and electricians will cost $300/hr. Print this out and put it on your fridge. Check back in 2030.
I am rapidly learning to do all those things myself. I always make sure to watch any repairs and ask questions so I can repeat the process myself in the future. Plus I have a neighbor who is a handy guy who can do a lot of these repairs and is happy to walk me through the process whenever I have a question.
We are all going to have to learn to do these things again.
Yes, YOU will, I will have plenty of low cost labor available to me.
Do the BLS use more than one method for calculating the CPI ?
Many folks sense were getting some form of—-Contrived Price Inflation.
Sure. The CPI for SS increases is different than the CPI used for quoting headline inflation in the news.
This is not error or mistake by the FED. They do not serve the general public. They are responsible to their share holders and they have been doing a fantastic job for them! Business is booming for the banks!
This is same economy as the last few years. Elevated prices due to too much money creation.
And too much credit creation.
It’s true there was an enormous amount of money sloshing around due to Covid.
But QT has removed trillions of dollars of it over the past couple of years. That should be making a noticeable change by now.
What’s happened is the uncertainty due to the tariffs. The transaction’s velocity of funds has decelerated. But Atlanta GDPnow’s measure is still elevated.
Here’s one example of having too much money. According to what I have read, it costs at least $100k to climb Mt. Everest. This does not include all the prior training, travel and equipment costs.
And yet, here we have literally hundreds of people, all from the excellent physical condition cohort, trudging up Mt. Everest in the footsteps of the person in front of them, all having the disposal income to remove this experience from their bucket list. Imagine how many more applied for a permit and were rejected. Sheese.
In my little world I still believe they determine inflation by looking just at gasoline pump prices. Those prices are public, change frequently, are easy to get and touch every aspect of the economy. And probably would easily explain why inflation has been so in control over 50+ years.
My gripe with inflation is primarily insurance. Health insurance, home owners and auto (wife/daughter) all continue to go up. Even when the costs for health insurance don’t go up, we end up with higher deductibles or lower benefits somewhere in the insurance chain.
As long as housing prices, auto prices rise and people keep getting older & sicker, there will be no slowdown in those costs.
Ironically, oil production is set to decline next year so we’ll have an energy crisis at some point maybe late next year and inflation will spike again.
https://www.wsj.com/business/energy-oil/eia-sees-lower-u-s-crude-oil-production-as-drilling-slows-48056af3?gaa_at=eafs&gaa_n=ASWzDAjLlTCXiP_E6cRB4zfQcocy8_CLYLeOqeKj9ZGy_2HQP2eKNZI3liBu&gaa_ts=6849c69e&gaa_sig=_EpK_AdBXqYCxolfHq3hZXGtULd53zrvHHSeIn6kC8jZLMWT5sUJQXx3suwGfZU2wifosRpiTMA3oXh8R_4HHQ%3D%3D
Agree with this 100%. Insurance costs are skyrocketing in every area of insurance as you noted. I suspect a lot of people may not notice because they typically pay once a year (home) or have it automatically deducted (health/auto) from their paycheck/bank account and rarely look at prior years costs.
for insurance companies, a big part of their income is from investing your premiums. with losses or low returns on their portfolio they make it up any way they can
Homeowners’ insurance goes up as the cost for new roofs goes up (labor and materials). Auto insurance goes up because there’s no such things as a “fender bender” anymore. Cars don’t have bumpers like they once did. The slightest impact breaks all the plastic pieces and requires an entirely new front end.
And fear of EV batteries often get EV’s with even minor damage totaled. This should be illegal!
So your proposal is not to total them and they ‘just see what happens’? If it then somehow catches fire and kills someone or burns down a house etc then who pays?
Ford went this route in the 70’s with the Pinto when they realized it would explode if hit from behind. They calculated it was cheaper to pay out claims from explosions (and related deaths) than to recall all the cars and fix them. Is that your proposal for EVs with potential battery damage?
No, sad you wasted two paragraphs on your poor logic BS reply.
The correct answer is learn to repair the car properly, so the after repair exposure is no more than any other repair.
When YOUR minor damaged EV is totaled and you accept the insurance payout (or your bank and yourself, if anything is left over), you become part of the problem that leads to the sharp increases in insurance costs.
That’s nice in theory. But at the moment the only option with the batteries is full replacement which as you know costs upwards of 10K or more. That’s just the battery repair never mind the rest (Tesla costs a lot more than normal cars because its injection molded and not individual pieces meant to be replaced).
Even if you do manage to repair the car and the battery, until lawsuits are unable to be brought for any subsequent fire you still run the risk of a future lawsuit. Somehow tort law would have to sign off on this and good luck with that.
It’s not just that the EV battery “might” be damaged. It might now but insurers are worried that all the electrics in modern cars might trigger a problem that will blamed on the battery or a poor repair.
But whatever. Nothing anything you or I can say will have any effect whatsoever on the subject.
Very surprised the Trump admin even allowed EIA to release any report like that. Everything is fine folks .. keep moving …
Here’s a strange experience. When I moved from Philly back to Chicago in 2011, my car insurance (same company/coverage) went down 50%. Back then I wasn’t looking at bills much (I was making good money), but it still caught my attention.
Changes from State to State in some bills makes for a different outlook.
That’s a good and thought provoking piece. What I took from your reader’s comment was my own creative interpretation. There’s no way I can tell you one way or the other what my personal inflation was YOY. I assume 100% of us are all too busy for that type of actuarial hobby. When I picked up my weekly chicken lunch today, I know my container is smaller than five years ago, but I wished I had a photo of the old one because HOW MUCH smaller is it? Do I really know the %?
We could just compare faith in government stats to faith in whatever God or Gods one may or may not have faith in. Neither can really be proven to everyone’s satisfaction. Or anyone’s… but that just my personal argument not a proven fact.
> “I assume 100% of us are all too busy for that type of actuarial hobby.” Your comment amounts to, ‘I don’t pay attention to my personal expenses, and have a negative view of those who do.’ What are you adding to this conversation?
For my part, I pay close attention to those things because it matters for my well-being. Insurance is the biggest rise for me. I am fortunate to have a free and clear home, near zero energy bill (aside from gasoline), and very small distances to any resources I want/need. Caring every day for my personal health is a vast expense minimizer. This took years to arrange, to maximize everyday serenity and freedom. I don’t envy zoomers, though, with other cross-currents piling onto any attempt to calibrate a future too: AI, tariffs, etc.
Excellent post. I learned quite a bit here today. I’m in the same boat as you. Thanks.