By Joseph Carson, former chief economist at AllianceBernstein
Consumer prices rose 0.8% in November, pushing the increase in the last 12-months to nearly 7%. That represents the most significant increase since 1982. But in reality, the current inflation rate is much higher than what is reported and above that of 1982.
The shelter component of the CPI, which has the most significant weight, increased 3.8% in the past year. That compares to a 7% to 9% increase at the highest point in 1982. But that is not an apples-to-apples comparison.
In 1982, the CPI shelter component included house prices for owners' housing costs. But nowadays, the shelter component for owner's housing is based on a non-market rent index. House prices are up close t0 20% in the past year versus a 3.5% increase in owners' rent.
Adjusting today's shelter measure for the rise in house prices and removing the owner's index would result in a significant boost to the reported inflation rate. Based on my calculation, todays' inflation rate would top 11%.
Bill Ackman agrees
The largest owners of nationwide single family rentals are reporting 17% YoY rent increases. OER is 30% of the Core CPI calculation and 24% of reported CPI. Using the more empirical measure in the calculation increases today’s Core CPI from 4.9% to 9.0% and CPI from 6.8% to 10.1%— Bill Ackman (@BillAckman) December 10, 2021
Housing inflation is unlikely to abate based on supply and demand trends. The inflation that households are actually experiencing is raging and well in excess of reported gov’t statistics.— Bill Ackman (@BillAckman) December 10, 2021