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CPI Data from the Twilight Zone


Bureau of Labor Statistics data doesn't reflect reality.


CPI Data for First Half 2009:

Click to enlarge

Unbelievable Statistics

  • The Bureau of Labor Statistics is reporting that rent from the first half of 2009 is up 3.1% from the first half of 2008.

  • The BLS is reporting that owners' equivalent rent from the first half of 2009 is up 2.1% from the first half of 2008.

Effect on the CPI

Inquiring minds are reading Consumer Price Indexes for Rent and Rental Equivalence.

Rent of primary residence (rent) and owners' equivalent rent of primary residence (rental equivalence) are the two main shelter components of the CPI.

Rental equivalence. This approach measures the change in the price of the shelter services provided by owner-occupied housing. Rental equivalence measures the change in the implicit rent, which is the amount a homeowner would pay to rent, or would earn from renting, his or her home in a competitive market.

Relative Importance of Shelter Components in the CPI

Note that OER is the single largest component of the CPI at 23.83%. OER plus rent of primary residence is a whopping 29.96% of the CPI.

With home prices crashing, a massive inventory of unsold homes, and a massive shadow inventory of unsold homes on top of that, does anyone think that rental prices of homes is rising?

Bear in mind that everyone but the BLS seems to know that rent prices are dropping like a rock.

Not the First BLS Error

This isn't the first major error by the Bureau of Labor Statistics. I've been harping for two straight years that a massive revision in jobs was coming because of a fatally flawed Birth/Death Model.

Last Friday, the Bureau of Labor Statistics announced it would revise the number of jobs lost during the recession by a whopping 824,000. (See Preparing for Huge Downward Revision in Job Numbers)

Most were shocked by this announcement. The only shock to me is how low the number is. Look for an upward revision (or for the Bureau to smooth the number over time).

Effect on the CPI

Rents of primary residence are clearly falling and owners' equivalent rent should be falling as well. Given that owners' equivalent rent and rent make up 29.96% of the CPI, the year-over-year CPI is massively overstated at -1.5%.

The BLS is once again in the twilight zone.

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