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Today the BLS reported the CPI was up 2.4 percent from a year ago.

A reader commented “I will question anyone to calculate his or her own inflation rate and confirm that is similar to what the government indicates.“

Inflation is Personal

I suspect we beat the reported percentages using BLS weights because we own our own home free and clear, I am on Medicare, and I am an extremely good food shopper with a decent freezer.

I buy what is on sale and freeze it. Alberson’s has 10 percent off on the first Wednesday of every month for seniors. I save an additional 10 percent on those days. If you don’t have a freezer and don’t do what I suggest you are making a huge mistake.

We have zero education expenses other than an internet package that the BLS lumps in with education. I hardly ever buy clothes and when I do it’s typically a sale.

Moreover, Owner’s Equivalent Rent (OER) does not realistically apply to home owners and that is a whopping 35.45 percent of the CPI.

OER is the price one would pay to rent their own home, unfurnished, without utilities. OER rose 0.27 percent in May.

Nobody pays OER. Those with a mortgage pay a fixed amount every month. Many argue that because the mortgage payment is constant, the monthly increase is zero.

However, the BLS does not put home prices in the CPI on the basis homes are a capital expense, not a consumer expense.

So what? Does inflation matter or just consumer inflation?

Tell anyone looking to buy a home, particularly zoomers and millennials looking to buy their first home, that inflation is 2.4 percent and they will think you are bat-shit crazy.

According to Case-Shiller, Home prices are up 50.6 percent since January of 2020.

Because the Fed has a myopic eye on consumer inflation instead of all inflation it has sponsored bubbles of increasing amplitude over time.

Ignoring home price inflation as irrelevant is a fatal flaw in the CPI. And that flaw is compounded by those who pay their own insurance, those with kids in college, and especially those who pay half of their income in rent, weighted at  7.46 percent.

For those who do rent, the weight of 7.46 percent is best views as a stale joke warmed over.

Anyone who is on Medicare and owns their own home free and clear probably comes close to the reported CPI percentage. And those in that group who also don’t have a car likely beat the CPI handily, especially if they are good shoppers and don’t eat out much.

Using the CPI weights, I suspect I come in better than the CPI because of careful shopping.

But my weight is nothing like what the BLS assumes. My personal weight would be Medicare, home insurance, car insurance, food, and utilities.

So yeah, it’s totally F’d up, in many ways.

I have repeatedly put it this way: Inflation matters, not just alleged consumer inflation. And that is a major error by the Fed which has sponsored numerous economic bubbles as a result.

A Good CPI Report in May Is Even Better than it Looks

Earlier today, I posted A Good CPI Report in May Is Even Better than it Looks

Carried to a second decimal place, the CPI is better than reported this month.

However, I also had this caution: The report was not all good, especially medical care and insurance.

The upcoming PCE price report (the Fed’s preferred measure of inflation) may be worse than expected because it overweighs medical care and insurance relative to the CPI which overweighs shelter.

So, despite being better than expected, my comment “It’s totally F’d up,” still applies.

Those who complain the CPI is overstated because of OER are clueless about what inflation is.

The Fed Uncertainty Principle

Please consider The Fed Uncertainty Principle written April 3, 2008 before the collapse of Lehman Brothers and Bear Stearns.

Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self-reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication, there would not be observer/participant feedback loops either.

Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

Related Posts

February 3, 2025: Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed

Is the Fed playing politics? Does the Fed know what it’s doing at all?

May 6, 2025: Gold Soars to Another New High, What’s the Message?

There are three messages. Do you see them?

To repeat: Inflation matters, not just alleged consumer inflation. And that is a major error by the Fed which has sponsored numerous economic bubbles as a result.

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