Thursday, October 18, 2012

Inflation by any other name – Rising rents have pushed up the CPI to highest monthly change in three years. Shifting the Fed bailouts onto the working class and poor.

The Consumer Price Index (CPI) attempts to measure the change in price for a basket of American goods and services.  I say attempts because measures like the “owner’s equivalent of rent” are simply an estimation as to what a home owner’s place would rent for.  In the early 2000s with home prices surging, it missed a glaring trend that a place that would rent for say $1,000 was now costing the home owner $2,000.  This was missed and the data understated this important fact. 

Since housing is the biggest line item for Americans and the CPI is heavily relied upon, many just assumed overall inflation was “healthy” during this time.  Today we are facing a situation very similar to stagflation where unemployment remains elevated while the standard of living decreases.  Those that claim inflation is nonexistent or healthy point to the CPI but ignore the headwinds that are starting to emerge.  The last two months have seen the biggest increase in the CPI since the middle of 2009.

The CPI is now being impacted by rising rents

There is an odd situation occurring in the US right now.  The Federal Reserve essentially owns the mortgage market and has caused interest rates to drop to record lows.  This was all in part to conduct a shadow bailout of the too big to fail banking industry but the repercussions are being seen in other areas where the quality of life for most Americans is being squeezed.  Just take a look at rents: Read more....

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