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Let's Look at Four Measures of Inflation Plus a Spotlight on Food

Here are four measures of inflation plus a discussion as to why all of them are understated.
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Inflation data from St. Louis Fed, chart by Mish

Inflation data from St. Louis Fed, chart by Mish

Chart Notes

  • CPI stands for Consumer Price Index
  • PCE stands for Personal Consumption Expenditures. 
  • PCE differs from the CPI (Consumer Price Index) in that it includes expenses paid on behalf of consumers such as Medicare and company medical plans whereas the CPI only included expenses directly paid by consumers.
  • Core means excluding food and energy
  • Neither the CPI nor PCE directly includes home prices, instead they incorporate rent 
  • The yellow highlights on dates indicates timing of free money stimulus checks

Inflation had already taken off before the final and biggest round of free money.

Pre-Pandemic Inflation Measures  

  • CPI: 2.3% 
  • Core CPI: 2.4%
  • PCE: 1.9%
  • Core PCE: 1.9%

March 2022 Inflation Measures

  • CPI: 7.9%
  • Core CPI: 6.4%
  • PCE: 6.4%
  • Core PCE: 5.4%

CPI With a Spotlight on Food

CPI data from the BLS via St. Louis Fed, chart by Mish

CPI data from the BLS via St. Louis Fed, chart by Mish

CPI Seven Food Categories

CPI data from the BLS via St. Louis Fed, chart by Mish

CPI data from the BLS via St. Louis Fed, chart by Mish

Home Prices

Case-Shiller (CS) home price data via St. Louis Fed, chart by Mish

Case-Shiller (CS) home price data via St. Louis Fed, chart by Mish

Case-Shiller Index vs CPI and Owners' Equivalent Rent

CS National, Top 10 Metro Percent Change 2022-01

Neither PCE nor the CPI directly incorporates home prices. Instead, both use rent and owners' equivalent rent. In addition the BLS and BEA measures of rent are lagging and understated.

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Owners' Equivalent Rent (OER) is the mythical price one would pay to rent one's own house from oneself, unfurnished and without utilities.

Allegedly, rent is only up 3.76% and OER 4.09%.

Given that rent and OER constitute over 31% of the CPI, it's very understated and even more so if one directly factors in home prices. 

2021 Set New Annual Records for Home Prices. 2022 Continues the Trend

For more discussion of home prices, OER, and how understated inflation really is, please see 2021 Set New Annual Records for Home Prices. 2022 Continues the Trend.

CPI Up Most in 40 Years

For more on the CPI, please see Consumer Price Index Jumps to 7.9 Percent, Another New Four-Decades High.

That CPI report is as of February. Home price data lags.

Alleged "Benefits of Running the Economy Hot"

Finally, recall that Charles Evans, president and chief executive officer of the Chicago Fed wants to run the economy hot.

For discussion, please see Chicago Fed President Praises the "Benefits of Running the Economy Hot"

This post originated on MishTalk.Com.

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