June, July, & August 2024 CPI & PPI not what Fed Reserve Needs for rate policy change

LOL! When the Feds cut, it will be into bad news prior to the election.

 

This article expounds pretty well on how home values are calculated as part of the CPI, but differently since 1983.

Why the government took home prices out of its main inflation index (fullstackeconomics.com)

So, in the 1970s, economists argued that it made more sense to think of homes as capital goods that “produce” housing services. It’s these housing services that actually get consumed. This is easy to see for renters, since the capital good—the home—is owned by the landlord. But economists argued the same principle could be applied to homeowners, who can be thought of as renting their homes from themselves.

That’s the approach the BLS has taken since 1983. Instead of collecting data on what homeowners actually spend to buy and maintain their homes, the BLS estimates how much homeowners would have to pay to rent their homes from a hypothetical landlord. This “imputed rent” is used to estimate the inflation rate for owner-occupied housing.

The BLS does ask homeowners to estimate the rental value of their own homes, but only to determine how much weight to give owner-occupied homes relative to other categories like milk or haircuts. Changes in these weights don’t have much impact on the calculated inflation rate.

And the BLS doesn’t use this survey to compute the actual inflation rate for owner-occupied housing. Instead, the BLS looks at market data for rents paid for nearby properties with similar characteristics.

Owner occupied homes are calculated into the CPI, at least insofar as how the home would rent out using comparable rentals.

Bottom line housing which does include owner occupied properties do add to the CPI and the CPI will likely respond to changes in interest rates.

Not wanting to be argumentative, but if the Feds cut into a rising housing market as it will be doing next week, housing rose .5% in August and is up over 5% annually, the risk for higher inflation will go up higher as more buyers with lower mortgage rates chase a still low inventory housing market. I'm sure there are locations where low inventory isn't the case, but nationally there is a housing shortage:

The U.S. is now short 4.5 million homes as the housing deficit grows - Jun 18, 2024 (mediaroom.com)

The growing housing shortage is the primary reason for the affordability crisis

• From 2021 to 2022, the U.S. housing shortage grew to 4.5 million homes, up from 4.3 million.
• In 2022, the number of U.S. families increased by 1.8 million, while only 1.4 million housing units were built.
• Those who live in markets with stricter land-use regulations are less likely to be able to afford the mortgage payment on a typical home.

SEATTLE, June 18, 2024 /PRNewswire/ -- Despite a pandemic construction boom, the U.S housing shortage grew to 4.5 million homes in 2022, up from 4.3 million the year before, according to a new analysis from Zillow®.1 This deepening housing deficit is the root cause of the housing affordability crisis.

 

You are likely telling more truth than fiction.

 

Rents in the price range of homes will be reflected accordingly. Shelter has made new highs in the last year and, according to you, have not yet been accounted for in the CPI. For supply and demand reasons, shelter isn't going down.

You can't just say take out shelter and everything is fine. Even using the 2.5% CPI All and taking out .5% for shelter inflation puts the CPI All at 2.0%. However, who gave you the right to discount shelter to get to a rate you want to have over the rate we do have? To top it off, the preferred CPI Core would be 2.7% if you backed out shelter.

That the Fed under Powell has painted itself into a box for rate policy change doesn't mean they are making the right decision any more so than when they turned a blind eye delaying the fight to stop inflation. Time will tell if cutting rates starting in September 2024 was correct or not.

 

This is all you needed to say to satisfy me:

"CPI including shelter is the correct way to measure the actual impact on consumers."

Consumers need relief from the Biden/Harris inflation. Their inflation is like a relative coming for a visit and then deciding to stay for over 3 1/2 years. Every day the impact is felt by consumers. What was supposed to be transitory was never that.

I asked my wife about the 1% over 2 years in her shopping experiences. She just laughed and said must be Common Core Math as there is no way that has been her experience.

Using the Fed less shelter chart you provided to compare Biden/Harris with Trump, Biden/Harris has 19% inflation to date while Trump had 5% which included the first year of the pandemic.

The answer to Kamala Harris' question from the debate that she refused to answer and was not required to answer by the ABC mods is Americans are worse off under Biden/Harris.

Not wanting to argue or fight, peace and moving on for now.

 

I never commented on the WH causing worldwide inflation. I'm not a globalist. Socialist Canada and Socialist Europe is not anything I want the US emulating.

Make America Great Again means my greatest and highest concern rests with what we do in the US.

Honestly, I don't know why I'm bothering to tell you this again. It just bounces off of your tinfoil hat.

 

Today is the day for the first Fed rate cut. We are getting ready to experience Fed screw up #2 during the Biden/Harris administration tenure.

The unemployment rate went down from 4.3% to 4.2%, well within the full employment range of acceptable rates.

Core CPI is 3.2%, and the CPI All is elevated at 2.5% with the acknowledgement that shelter must be included in both numbers.

The PPI was up .2% month over month.

The PCE Core is 2.6% for a third consecutive month and the PCE All is 2.5%.

Manufacturing is up.

Consumer spending is up.

Bottom line, if in the position to do so, I'd advise the Feds to hold off. Treasuries have come down 1/2 point and mortgage rates are down too. Maybe the rates would go back up if the Feds continued to hold the Fed rate steady, but that isn't a given.

Tick tock, tick tock, tick tock, we'll know the cut and how much sometime in the early afternoon.