Joseph Carson, former chief economist of AllianceBernstein, recently observed on his blog:
“CPI inflation of 2021 is not as high as that of the 1970s—False. It’s not possible to only compare inflation numbers across several decades because of significant changes in measurement. The CPI of the 1970s included house price inflation, and the current measure does not.
“Here’s a simple illustration of how significant including and not including house price inflation can be. In 1979, CPI rose 11.3%, and that included a 14% [increase] in the price of existing homes. Owner housing accounts for nearly one-fourth of the CPI index, so the double-digit gain in house prices in 1979 accounted for almost one-third of the CPI increase.
“In the past twelve months, CPI has increased 5.4%. However, the 23% increase in existing home prices is not part of that as government statisticians have replaced house prices with an arbitrary owner rent index (up 2.3% in the past year).
“Using the 1970s CPI measurement practices of owner housing would lift the 2021 CPI by approximately four to five percentage points, pushing it close to the double-digit gains of the 1970s.”
This is a prime example of the reasons why we created the Guild Basic Needs Index, our in-house real-world inflation gauge (see here for a description). It is currently registering a 25.4% year-over-year increase.
