St. Louis Fed: "Warning: Don’t Infer Regional Inflation Differences from House Price Changes"

"There are a few reasons why regional house price growth does not measure regional inflation and thus does not accurately reflect changes in the cost of living. First, house prices capture both the price of housing services (i.e., shelter) and the value of housing as an asset (which is primarily the price of the land). The latter drives most of the change in house prices. As the value of housing increases (decreases), the return on investment for homeowners increases (decreases), driving up (down) the price that consumers will pay for housing. Changes in house prices are useful for studying broad housing market trends, as well as household wealth, but do not necessarily reflect changes in the actual cost of housing services for homeowners. "

From a new article by Charles S. Gascon and Andrew Spewak in Economic Synopses, a publication of the Federal Reserve Bank of St. Louis.

FEE: "The CPI is a False Guide for Monetary Policy"

An Austrian economist, Richard M. Ebeling,  takes on the Consumer Price Index.

The pricing subcategories highlight the smoke and mirrors that is the statisticians’ distinction between overall and “core” inflation. People will occasionally enter the market to purchase a new stove, couch, or bedroom set, and if the prices for these goods happen to be going down, or slowly rising, we may sense that our dollar is going further than in the past.

But buying goods like these is an infrequent event for virtually all of us. On the other hand, every one of us are in the marketplace paying for food, gas for our cars, paying heating and electric bills on a regular basis. The prices of these goods and services, in the specific brands and combinations that we as individuals choose to buy, are what we personally experience as a change in the cost-of-living and our personal rate of price inflation (or price deflation).

The Consumer Price Index is an artificial statistical creation, derived from thousands of individual prices, a statistical composite that only exists in the statistician’s calculations. It is the individual goods in the subcategories of goods that determine the change in the cost-of-living and the degree of price inflation (or deflation) that we each experience.

Read the whole article here.