Once again the BLS tells us inflation is under control. Once again, close inspection suggests something else.
Let's investigate, starting with the BLS Consumer Price Index Report for December 2019.
- According to the BLS, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in December on a seasonally adjusted basis after rising 0.3 percent in November.
- The gasoline index increased 2.8 percent in December. The index for all items less food and energy rose 0.1 percent in December after increasing 0.2 percent in November.
- The All Items index rose 2.3 percent over the last 12 months. So did the index for all items less food and energy, the same increase as the periods ending October and November. The food index rose 1.8 percent over the last 12 months, while the energy index increased 3.4 percent.
CPI Month-Over-Month and Year-Over-Year
Hooray! Inflation Tame
Hooray, inflation as measured by the BLS is only up 2.3% from a year ago.
The Bloomberg consensus estimate was 0.3% month-over-month so 0.2% looks tame. The core inflation measure (CPI excluding food and energy) rose only 0.1% vs the expected 0.2%.
But does your basket match this?
CPI Percentage Weights
It's when you dig into details you find disturbing trends, like the lead chart and this.
Medical Care Costs Month-Over-Month
Medical Care Cost Detail
On the rare occasions the month-over-month price drops, costs the following month tend to jump 0.6% to 0.8% or higher.
Medical Insurance Quotes
I posted these quotes last month, but it's worth another look after this gloomy report.
I went to NerdWallet for some quotes. My base case was a husband and wife making a combined $100,000, both aged 60, non-smokers, with no dependents.
Same Couple Making $60,000
- For a couple, aged 60, making $100,000 per year, "affordable" care costs $19,776 right off the top. Then there is a max out of pocket expense of $8,150 per person. Yes, per person.
- For a couple, aged 60, making $60,000 per year, "affordable" care costs $3,804 right off the top. Then there is a max out of pocket expense of $8,150 per person.
The BLS tells us, medical care services is only 6.97% of the "average" household expense.
Average includes all those on medicaid and medicare. It also includes those on company plans.
It does not count corporate costs. Why? The BLS is only concerned with "consumer" prices. No other measures of inflation are important.
Averages take into consideration the average person does not go to the hospital.
Heaven help you if you actually need help.
What About Home Prices?
Good question, especially if you want to buy a house.
The BLS Relative Importance Table shows housing is 42.20% of the CPI.
Owners' Equivalent Rent is the largest component in the CPI, accounting for a whopping 24.05% of the CPI.
The Owners’ Equivalent Rent (OER) Calculation method is absurd.
The expenditure weight in the CPI market basket for Owners’ equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
Home Prices vs OER vs Earnings
Already have a home?
If not, don't expect to find an affordable one. Sorry. You simply do not fit the BLS mode where averages rule.
BLS Model vs Reality
If you are in school, looking to buy a home, buying your own health care, or even having insurance but getting sick, then your measure of the CPI will be dramatically different than what the BLS tells you.
If you are 65, on Medicare, and own your own home. Congratulations. You fit the BLS CPI mold perfectly!
This issue alone could easily cost Trump the election in 2020.
Trump did not cause this setup, but he now owns the problem and did not fix it.
Anyone buying their own insurance might easily listen to charlatans promising "free" health care,
Mike "Mish" Shedlock