Wednesday, November 19, 2008

OER: Optics Es Ridiculum

From the Bureau of Labor Statistics:

These data points are for the U.S. city average CPI for All Urban Consumers (CPI-U) as of December 2006:

Shelter is 32.776% of CPI-U

Here is the breakdown:

Rent of primary residence
Lodging away from home
Housing at school, excluding board (2)
Other lodging away from home including hotels and motels (3)
Owners' equivalent rent of primary residence
Tenants' and household insurance

The calculation for the owners' equivalent rent of primary residence is based on the following fantasy:

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.

Translation: CPI did not capture housing inflation on the way up, and CPI has not captured housing deflation on the way down. The former reduced government payments based on CPI the latter reduces deflationary expectations, the hemlock of the elites. The .1% increase in Owner's Equivalent Rent in this morning's CPI number is a joke. Perhaps over the long term this 'smooths' the data, but all optics are clear in hindsight.

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