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CPI We sometimes laugh at the “core” rate because of course, real people can’t exclude food and energy from their spending

That’s not its purpose, though. Core CPI shows whether those more volatile commodity prices are becoming embedded in other goods and service prices. 

We think of “services” as restaurants, haircuts, hotels etc. Healthcare is another big one, but housing is actually the biggest service category. 

You pay rent, your landlord “serves” you by putting a roof over your head. If you own your home, you pay imputed rent. In either case, housing is the biggest single expense for most households, and its price has been rising steadily.

Let’s examine a particular quirk about housing inflation. The rent portions of CPI (both actual rent and owner’s equivalent rent) come from surveys asking people about their housing costs. They don’t ask the same people every month, and they rotate through different regions every six months. The findings are averaged into CPI over time, not immediately.

That’s why we see housing inflation in the August number, even though we can look at the current data and see that housing and rents have seemed to peak. August data doesn’t reflect what actually happened in August but is actually an average of what happened over the last 12 months.

And that is why we are going to see core services—of which housing is a major component—continue to push inflation higher.

 Gavekal Research Chief Economist Anatole Kaletsky shared this chart after the CPI report, showing some other indicators designed to reflect inflations depth and “stickiness.”

John Mauldin Thoughts from the Frontline 16 September 2022


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