Everything you always wanted to know; how Owner's Equivalent Rent (24% of CPI) undercounts inflation

Jim H
By Jim H on Sun, Jul 6, 2014 - 4:35pm


How The US Government Deliberately Understates Inflation

July 3, 2014

Inflation has been raising its ugly head recently, even the official CPI has nodded feverishly in that direction. The single largest component of CPI, the housing component, which accounts for about 30% of the whole index, was redesigned in 1983 to purposefully understate actual price increases. The calculus was simple: It would save the government many billions every year on every form of payment that is indexed to CPI. So the housing component doesn’t even look at current rents – and current rents have been soaring.

Since the rent increases won’t be fully reflected in the CPI, we won’t see inflation coming, officially, and the Fed, which relies on the even more unrealistic PCE index, “won’t even see the curve,” says Lee Adler, of The Wall Street Examiner. With over a decade in real estate, he dug into the housing component. Here is his must-see video – when he gets to the chart, make sure it’s on full screen. It will push up your blood pressure.

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