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Inflation is Up 7% in December Reaches Fastest Pace Since 1982

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44 comments on Inflation is Up 7% in December Reaches Fastest Pace Since 1982

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Price Hikes From a Year Ago    

• CPI 7.0%
• Shelter 6.0%
• Excluding Food and Energy 5.5%
• Food and Beverages 6.0% 
• Owners’ Equivalent Rent 3.8%
• Medical Care Services 2.5%
• Rent of Primary Residence 3.3%

CPI Month-Over Month 

CPI Year-Over Year Since 1971

The last time the CPI rose this much, Jimmy Carter was president and oil prices were soaring in an Iranian supply crunch.

Owner’s Equivalent Rent 

Owners’ Equivalent Rent, the mythical price one pays to rent one’s own house from himself is the single largest item in the CPI. It has a current weight of 23.509%. 

The series only dates to 1983. Prior to that, home prices were directly in the CPI. Today, the BLS views home prices as a capital expense.

Economists have a good case that home prices are a capital expense, but historical comparisons are inaccurate. More to the point, home prices are a measure of inflation that the Fed and BLS just don’t count. 

Housing Adjusted CPI

It should be difficult if not impossible to say that housing prices are not a measure of inflation.

But that’s what the BLS and Fed say every month.

Homeownership Dreams of Zoomers and Millennials Shattered by Prices

Home prices and rent are soaring faster than wages. This shattered home buying plans of generations Y and Z and put them in a rent squeeze as well.

For discussion, please see Homeownership Dreams of Zoomers and Millennials Shattered by Prices

What About Property Taxes?

For a look at the tax aspect and utilities please see Reader Shares Fascinating Household Expense Data, the Same House for 80 Years!

Fed is Out of Control

Every Measure of Real Interest Rates Shows the Fed is Out of Control.

Fed Operations Look Like a Ponzi Scheme

Finally, please see my take Fed Operations Look More Like a Ponzi Scheme Than Bitcoin or Ethereum

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Mike Shedlock

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44 Comments
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StukiMoi
StukiMoi
4 years ago
“Economists have a good case that home prices are a capital expense,”
No they don’t.
Accountants may have a good case for doing so. Or heck, not even accountants in general. But specifically financial accountants. And then only on empirical, never on logical, grounds. And solely on empirical grounds derived from narrow empiri at that: The past century or so in the West. And perhaps a few other periods and places. Not on grounds aspiring, even in the slightest, to universality.
Universality is Economics’ stock in trade. No different from mathematics. Two plus two being five, just because studies show that today, if you and I could both afford two houses each a year ago, The Fed makes sure the two of us together can now afford five, simply ain’t how mathematics, nor economics have ever worked. 
Financial accounting, being a discipline needing to be more immediately practical, may well have to take such things, as The Fed arbitrarily deciding 2+2=5 wrt purchasing power in dollars, at face value, and roll with the punches. After all, those making immediate business and financial decisions based on the accuracy and relevance of accountants’ inputs, very much have to do so, or they will be bankrupted. So, for accountants, it could well be that it currently makes all the sense in the world, to treat houses as capital items.
But financial accounting has exactly zero, a literal hard zero, in common with economics. The two deal with exactly none of the same issues whatsoever. Heck, the sad fact that enough lightweights, even among those professing to be “economists” and “accountants” seem to believe that they do; simply because both happen to refer to a word spelled Dollars or some such; is one of the most pressing problems plaguing economics today (It may well plague accounting as well. I just don’t know enough about that…)
Economically, a house is a consumer good only slightly removed from an umbrella. And even less removed from a tent. Or perhaps a hole in the ground. While a capital good is a non-final good of production, which is valuable only in the context of it facilitating production of other, lower order (closer to final, consumable) goods. Anyone claiming economists believe houses are capital goods, is no economist. Nor has even the faintest idea about what he babbles about.
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Jackula
Jackula
4 years ago
So really with accurate housing inflation it’s closer to 11%. And nobody in power wants to prick the asset bubbles and would rather eventually drive the economy off a cliff at some point.
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fulldecent
fulldecent
4 years ago
For an excellent discussion and data source on CPI, including comparable statistics using the OLD method for current years, please see:
John Williams’ http://www.shadowstats.com/
I’ve used it over the years and he has the best notes on this topic.
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Scooot
Scooot
4 years ago

7% inflation in the first year of the decade, 3.5 years worth of the Fed’s (daft) 2% target, what a miss!  

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RonJ
RonJ
4 years ago
So what ever happened to Fight For $15? Zero Hedge headline says that real wages have declined for “9th straight month.”
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Roadrunner12
Roadrunner12
4 years ago
The game changer going forward regarding inflation is US oil production has peaked and will decline going forward. The decline has been pulled forward by climate change policies. In addition world oil production is to decline going forward.
We have had relatively stable oil/food for the last 40 years but that has come to an end in my opinion.
I understand that we have had extreme asset inflation and that assets are extremely overpriced, eg. housing, stocks and understand the deflation argument in that aspect. I have difficulty though in seeing how we are not going to have much greater inflation in food and oil going forward even with economic slowdowns???
I dont know if the above will pass the moderator???????? Somehow the moderator sees spam in all my posts.
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Roadrunner12
Roadrunner12
4 years ago
Reply to  Roadrunner12
No spam????? Come on moderator, whats different with this post and the other posts that got rejected??
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TexasTim65
TexasTim65
4 years ago
Reply to  Roadrunner12
There are a lot of secret trigger words that don’t pass the spam filter for some reason. For example another word for donkey won’t pass the filter nor will most of the names associated with Germany and what they did in the 2nd world war.
I always create my posts in another editor and then paste in here and if it gets rejected I just gradually remove words until it passes. Links are especially problematic.
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Captain Ahab
Captain Ahab
4 years ago
Does anyone remember when the Fed said its goal was no longer to have inflation at 2%, but to average inflation over the long term at 2%? Accordingly, I presume this inflation pandemic is only transitory; and like Covid, it will go away as soon as everyone is Faucinated. Meanwhile, it is business as usual.
The only problem is real interest rates, far into negative territory–the economy survives only on the Fed ventilator. Does anyone seriously think increasing interest rates by 0.25% will make a difference?
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RonJ
RonJ
4 years ago
Reply to  Captain Ahab
“I presume this inflation pandemic is only transitory; and like Covid, it will go away as soon as everyone is Faucinated.”
Was this inflation pandemic zoonotic or created in a FED lab? 🙂
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StukiMoi
StukiMoi
4 years ago
Reply to  Captain Ahab
“Does anyone seriously think increasing interest rates by 0.25% will make a difference?”
The Fed’s increasingly only fighting to preserve the illusion that they are in control of, and is willing to prevent, US sovereign debt from becoming worthless in too obvious a fashion. Occasionally raising nominal headline rates a tiny little bit, is entirely about preserving that illusion.
Currently, Chinese people, alone, likely work 10-100 times as many hours producing stuff for Americans, as Americans in return work to produce stuff for Chinese. Historically, American workers had more capital, so were more productive. Emphasis historically. So that discrepancy in labor division may have been sustainable. But by now, with Chinese labor productivity largely on par with (and rapidly blowing past…) American labor productivity, it’s no longer even remotely sustainable.
And that’s not just an internal, bilateral America-vs-China, Trump vs Xi, silly chest thumping exercise. Third parties, in Latin America in particular, are increasingly also realizing that China is providing them with something of value in return for what they have to give up. While America no longer provides anything other than empty promises. (Except perhaps some token military support to near universally despised juntas who prop up kleptocratic local leeching classes…)
No doubt the advertising flyers from America sound nicer, with nice sounding platitudes about “democracy” and “freedom”, compared to the rather stark Chinese communist ones. But where the rubber meets the road, no matter how badly Americans may want, or at least say the want, they simply no longer can. The American government demands this and that, but provides nothing in return. While American companies can’t compete with anyone, anymore. Americans burnt their capital playing bigshot living off of wall fungi. Hence they no longer have any capital. So their promises; wishes; and glorious, abstract platitudes; don’t really amount to much more than those of Argentinians any longer.
Ultimately, that will also determine how much demand there is for holding American paper as well. After all, the fundamental promises underpinning that paper, is increasingly recognized for being little more than an empty card house. Or perhaps even a willful Ponzi. It’s no doubt convenient for smaller economies to have what effectively amounts to one single international currency to do business in. Hence, going a bit out on a limb, and risking some losses, in order to not have to reorient, makes sense. But there are limits to how lopsided others are willing to let the contract get, before they start recognizing, just how short their own end of the stick is really getting.
And then they will; first slowly, then all at once; cast about for alternatives. And everybody will want to be part of the “first, slowly” group. As there will be nothing left but excuses for “why we can’t” for the panic stricken laggards stuck in the other one.
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Billy
Billy
4 years ago
End the Fed
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FlyNavy1
FlyNavy1
4 years ago
As you said Mitch, the pre-1983 CPI data series are apples-and oranges in comparison to the current CPI calculation.  Owner’s equivalent rent is a mythical creation.  As a multi-family investor, I love inflation.  Rents continue to rise.  That said, the equity and bond markets have largely shrugged off today’s CPI print.  In my anecdotal conversions with retailers, methinks the current bout of inflation is due to the global supply chain bottleneck and will (eventually) work itself out.  Bonds are the most universally hated asset class on Earth.  The contrarian in me can’t forget that 100% consensus is almost always wrong.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  FlyNavy1
“In my anecdotal conversions with retailers, methinks the current bout of inflation is due to the global supply chain bottleneck”
…
Sure sure.  Obviously, sending out $1200 stimulus checks to everyone … PPP to sit at home … rent moratorium … loan forbearance … child care credit … mandates … played no role, whatsoever …
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Captain Ahab
Captain Ahab
4 years ago
Reply to  Tony Bennett
The items you list are obviously factors; however, the more important issue is the  interest rate, by definition the price of money.
In theory, when rates are zero, money has no value. We get to that condition when the Fed adds zeroes to its balance sheet, and the government ‘spends’ money without restraint. What was not created by the excess of income over consumption (saving), is artificial–justifying zero value. Pour enough faux money into the economy and it eventually weakens.
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StukiMoi
StukiMoi
4 years ago
Reply to  Captain Ahab
“In theory, when rates are zero, money has no value.”
Anyone claiming money has no value, yet is unwilling to freely give up his own, is obviously not anyone whose “theory” is worth paying the world of attention to.
The conundrum ceases to be one, once you recognize that “rates” are; like literally 100% of the childish drivel promoted as empirical “economics”; completely arbitrarily defined. Hence effectively undefined. Hence effectively meaningless. Yes, if “rates”, as experienced by you, were truly zero, your money would have to be truly worthless. After all, if they were worth anything, someone would be willing to pay you for the privilege of taking some off your hands. But “rates” as experienced by you, is only tangentially related to the entirely arbitrary “rates” The Fed uses as one of its favored instruments for doing its thing: Of robbing the productive for the benefit of the connected….
IOW, “rates” being zero, does not at all mean that RATES are zero… (nudge, nudge…) Just as is the case for the entire pyramid of nothing but slimy, ultimately obviously illogical sleights-of-hand which is all that the “empirical” “economics” charlatans engage in; for the sole purpose of justifying robbing productive people for the benefit of connected leeches producing no value at all.
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OUdaveguy
OUdaveguy
4 years ago
I see a lot of inflation-blame-game in the comments here: China, logistics issues, covid policy, etc.  Let’s just be clear who the real culprit is and where the lion’s share of the blame lies as millions descend into the abyss of poverty through the theft of their purchasing power by unaccountable banksters.
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TexasTim65
TexasTim65
4 years ago
Speaking of housing, I read an article on 538 yesterday about how the Tsunami of housing evictions has yet to arise even though the moratorium ended months ago in many places (not all obviously)
I remember Mish had a couple topics about this back in the summer time and most of us including myself were quite sure there would be a wave. Yet it appears to be barely a ripple according to this article.
Mish, did you read this or have you been reading anything about evictions at all anywhere?
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FlyNavy1
FlyNavy1
4 years ago
Reply to  TexasTim65
TexasTim, I’m a multi-family landlord in the Boston area, mostly Section 8 thank God, because we got our rents from the state during Massachusetts’ moratorium which was more draconian than the rest of the country in general.  Evictions are back, even here (that said MA judges rarely evict during the winter).  Foreclosure sales have come back (going to one today) after a huge slowdown.
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KidHorn
KidHorn
4 years ago
Reply to  TexasTim65
Give it time. Eviction can be a lengthy process.
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dbannist
dbannist
4 years ago
Reply to  TexasTim65
I”m a landlord of 73 properties.

Evictions did not happen because the Federal government paid everyone’s rent for a year.  It just ended last week.

Literally everyone applied  for rent assistance, even if they were not behind and the government paid for it.

That’s the biggest reason you haven’t heard of evictions, so far that is.  However, since it ended last week and the gravy train is over, expect to hear more.

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thimk
thimk
4 years ago
Yes I believe covid issues were instrumental in pushing up prices . However some inflation blame (food/energy) should be assessed to China.
China hoards over half the world’s grain>
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Tony Bennett
Tony Bennett
4 years ago
Reply to  thimk
Well, since you brought up China … anyone else notice they had a big miss on cpi?
December month over month expected +0.2%.
Actual -0.3%.
Fits with my call that China will devalue in not too distant future.  Strengthening $US.
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FlyNavy1
FlyNavy1
4 years ago
Reply to  Tony Bennett
And Charlie Munger is loading up on BABA.
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Tony Bennett
Tony Bennett
4 years ago
In conjunction with cpi, BLS releases real earnings.
Prior month -1.9% year over year for weekly earnings.
From December 2020 to December 2021, real average hourly earnings decreased 1.9 percent, seasonally
adjusted. The change in real average hourly earnings combined with no change in the average workweek
resulted in a 2.0-percent decrease in real average weekly earnings over this period.
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Bam_Man
Bam_Man
4 years ago
Reply to  Tony Bennett
Average standard of living is in free fall.
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OUdaveguy
OUdaveguy
4 years ago
Reply to  Bam_Man
Is it too early for “green shoots”? -sarc
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Carl_R
Carl_R
4 years ago
It’s hard for the Fed to keep inflation at bay when the fiscal policy remains insane. They could, by jacking up interest rates, but the results would crush the market and housing prices, and lead to a recession.  As Realist is fond of reminding up, Democrats are unwilling to take that action, so the inflation is unlikely to vanish until after 2024.
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Bam_Man
Bam_Man
4 years ago
Don’t worry, that first 0.25% rate increase a couple of months from now will take care of the inflation problem.
BTW, didn’t Bernanke say on 60 Minutes that the Fed could “stop inflation in 15 minutes”, or do I just imagine remembering him say that?
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Doug78
Doug78
4 years ago
The driver shortage is about to be filled.
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Robbyrob
Robbyrob
4 years ago
things are getting more expensive
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KidHorn
KidHorn
4 years ago
I think this is mostly driven by COVID policies. The FED has been printing for a decade with nothing, outside of equity/bonds/real estate, showing up in inflation and then suddenly we have high inflation in every day goods. Current inflation is primarily due to supply constraints. Not excess demand.
I think at some point life will return to normal and inflation will return to normal 6 months or so later.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
“Current inflation is primarily due to supply constraints. Not excess demand.”
…
Really?  That is what Powell is shoveling.  Facts say otherwise.
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KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
Outside of a big jump in March because of stimulus checks, it’s been pretty flat.
Look at vehicle sales…
Way down and yet prices have gone up substantially.
I can cherry pick examples all day that are counter to retail sales data.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
Cherry pick to your heart’s desire.
That is why I use TOTAL sales.  No cherry picking.  The chart shows demand  WELL above trend (even allowing sales are nominal dollars).
I have yet to see a single retail establishment (including car dealers) that did not have a decent supply of product.
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KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
Ok. All you’re showing is a trend that was broken in a single month, March, entirely due to stimulus checks.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
Huh, one month?  More like past 18 months at trend or above.  You are still not making an argument for supply train issue.
If supply train, then it would show up in business inventories.  Oops, not there.  WHERE exactly is your supply constraint??
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KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
Here you go…
“Many contacts attributed the high cost of inputs to ongoing supply chain disruptions.”
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KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
And here’s the mom pct change…
Looks pretty flat to me outside of March.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
OK, I think I see what you are doing re trend.  Referring to 2021 whereas I’m basing on since pandemic start.  
Not denying supply issues, but consumer still has plenty of options.  And from the FREDs consumers had a spending spree.  Nothing like free $$s to drive up prices on goods.
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Captain Ahab
Captain Ahab
4 years ago
Reply to  KidHorn
You think house prices and cars going up 25-30% in one year, stock and bond prices skyrocketing with near-zero interest rates,…. will not affect all parts of the economy?
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Eddie_T
Eddie_T
4 years ago
Watching the dollar as it teeters on the brink….another cusp. If the dollar really breaks down here, we will see metals and O&G and miners break out. Not at all sure it will though.
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davidyjack
davidyjack
4 years ago
Inflation is disturbingly high.    CPI should be less in 2022 (than 2021).
I expect energy prices to continue to rise in 2022.
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Captain Ahab
Captain Ahab
4 years ago
Reply to  davidyjack
The problem is always what you don’t expect. Everything else is priced in.
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