The Consumer Price Index (CPI), for example, measures the prices of a basket of household goods and services that households regularly consume, with weights assigned to each item in the basket based on their average shares of total expenditures. Among these is a shelter component that includes both rental costs and the consumption value of owner-occupied housing, in addition to other forms of lodging such as hotels. Shelter makes up nearly a third of the basket for CPI inflation, and 40 percent of the basket for core CPI that excludes the volatile food and energy components.
Yes but through hedonic adjustment fuckery, many CPI measurements, especially housing, are complete nonsense.
Basically, if the cost of housing is rising, but the quality of housing is also rising, then these things will offset to a degree as far as CPI is concerned.
It’s one of the reasons healthcare inflation is so absurdly underrepresented. CPI basically assumes that you could pick any level of quality for a good or a service since the index inception. But you can’t go to a hospital and say “I just have a small cut on my finger, I’d like the 1950s level of care”…you will get the 2021 level of care and 2021 prices. But CPI will say “ah that’s not necessarily inflation because the quality of care has also gone up!”
Of course CPI is imperfect and worthy of plenty of criticism. But one must acknowledge: it’s an incredibly complicated thing to try and measure. This cynical conspiracy theory that big bad government is twisting its evil mustache and trying to make inflation look low is… well, I don’t think it holds up to much scrutiny.
Completely agree. And hedonic adjustments are not a bad thing either. As you say, inflation is an insanely complex beast that we don’t really understand.
But it’s worth pointing out that certain agencies use CPI imperfections when it suits them: the Fed has pointed to low inflation for years as justification to continue its monetary policies. And then when CPI no longer backs their actions, they change the narrative and claim it’s “transitory”.
CPI isn’t broken. It can’t be broken. It’s just a metric with a methodology.
But our interpretation of CPI is broken at best, and manipulative at worst.
I'm not quite sure what 'housing' means in that quote because CPI specifically excludes most housing costs.
RPI takes into account housing costs such as mortgage interest payments, building insurance etc. I'm not sure what USA measure, but the UK shifted to CPI in 2003 to harmonise with EU.
So no, UK/EU/CPI inflation measures basically don't include housing related costs. Certainly not the price of houses, which might be the thrust of OPs point.
I have no clue haha. I mean if it DOESN'T include housing doesn't that just mean that since housing costs are skyrocketing that this reported number is actually a lowball for inflation?
Meaningless crap, designed to support government narrative that everything is great, nothing to see here.
To have any credibility at all, inflation MUST include rent/mortgage payments and house prices.