Posted on 09/26/2014 9:10:27 AM PDT by Kaslin
With housing prices still rising, albeit more slowly, inquiring minds might be wondering about "Real" interest rates and the "Real" CPI?
CPI Distortions
I believe the CPI is hugely distorted, but not for the same reasons as everyone else. Home prices used to be in the CPI but the BLS now uses OER (Owners' Equivalent Rent). OER is a measure of actual rental prices as well as fiction.
The BLS determines OER from a measure of rental prices and also by asking the question If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?
If you find that preposterous, You are not the only one. Regardless, rental prices are simply not a valid measure of home prices.
OER Weighting in CPI
OER has the single largest weight of any component in the CPI, at 23.957%.
Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?"
HPI-CPI
Periodically, Black Knight Financial Services provides the actual data behind their HPI (Home Price Index), a measure of actual prices.
We can use that data to see what the CPI would look like if we put actual home prices in the CPI instead of OER.
I call this the "HPI-CPI".
I passed on an Excel spreadsheet of the Black Knight HPI aggregate housing prices to Doug Short at Advisor Perspectives and we produced the charts below.
Notes
Bacon has reached $8 lb. Beef is 50% higher than last year.
Home Price Indices are only relevant for those that have their net worth tied up in residential real estate or are looking to buy a house in the near term.
But Home Price Indices are “weighted” in the CPI to account for that, are they not?
I am appalled that I had to pay $26+ for 8 pounds of ground beef last week for a recipe. Had I not paid for the bulk packaging, it would have been $40+, noting the price/lb on the other packages.
Fyi, FReepers...there is a practice of incorporating water into meats these days. On chicken packaging you will note “15% added real chicken broth”. I find no such labeling on ground beef, but the amount of water resulting in the pan during cooking amounted to >20% of the net weight (that was Walmart, btw, but NOT Walmart brand).
My recent experience: Kroger/Fred Meyer does not incorporate additional water into their ground beef in bulk packaging. Next time I make the extra trip to the local butcher.
I would not be surprised that steaks might be similarly affected in some chain stores, since they’re doing it with chicken. I’ve noticed the additional water even in the brand names from Costco.
I wish there were somewhere to post this to track the dishonest grocer chains...
I don’t know in what grocery store you shop for bacon to have to pay $8.00 per pound, that is awfully high. Here where I am you pay about $5.00 per pound and that is on the high side. You must be shopping at the most expensive store in your town to have to pay that much
My wife was at Kroger. And she didn’t pay for it, she passed.
The $26.00 comes to $3.25 per pound, how much percentage was the ground beef fat free? 70%, 80% or 90% percent which I think is the leanest. (It might be 95%) I do remember still though when you could get a pound of ground beef for a quarter and paid a little over $25.00 for four large paper bags of groceries
Oh Kroger, that does not surprise me. I avoid Kroger, because they are so high, besides Wal Mart Superstore is closer to me, less than 2 miles
No Aldi’s where you live?
Yep, shop there often.
Yes there is, but I don’t care for Aldi. Having to put a quarter in the cart is inconvenient for me as I carry very seldom cash with me
Can’t recall, but it wasn’t ‘7% fat’ (I think it was 80/20). The smaller packages right next to the 5lb logs were 4.99/lb for 80/20. Again...at Walmart.
The water content contrast between the 2 packages at the 2 different stores is what was most astounding, with price/lb nearly the same.
The price of $3.25 per pound for 80/20 sounds about right, at least this is what we pay here average I am not sure about the water content though. When I grew up in Germany I don’t remember that water was added to the meat when it was processed.
$3.25/lb or so in 5lb log. $4.99/lb in 1lb pkg.
With the water content, the actual price/lb was $4.07/lb in the 5lb log. Outrageous, if you ask me (yes, I measured it with both my measures and my kitchen scale: About 2 cups of water in the pan after 10 or so minutes of heating, or almost exactly 20% of the net weight). Yes, “water”.
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