Well, At Least the Fed Is Getting What It Wants

A few weeks ago my AIM status message read something like : Are the declines in housing prices causing inflation to appear low, artificially? This was a serious question. Not something that would allow me to say "told ya so!" down the line. No one ever answered. Inflation and the CPI are things I'm not too familiar with. I understand that there is core and non-core and that food and energy can be stripped out, and that measurements and metrics were changed about 30 years ago and are revised now and again when a potentially better way of monitoring price changes is found. Back to my question. Not having spent a great deal of time in the US from 2005 - 2007, things seemed a bit more expensive upon returning. At first I chalked it up to differences in the countries I was living in. After a while though I noticed price increases in more and more products. In following peak oil, one not only watches energy prices, but other commodities as well. Five major grain crops were up, some over 100% (corn, wheat), oil continuing its upward rise (~75% in 2007), moo juice and gold reaching new highs. All happening last year.

Scanning through the daily posted drum beat (note that the first story posted mentions Mexico as having closed its ports that ship 80% of its oil exports!) at the Oil Drum the other day, I stumbled across this article that piqued my interest as a possible answer to my inflation/housing question. In short, the answer was yes.

Why is there no inflation? Housing. [...] Housing prices are down, at least if you are trying to sell.

We know that the credit crunch, sub prime mortgage mess and declining housing values are wreaking havoc all over the economy. It is also cancelling out price increases in other goods.

as far as the government's concerned, the 5 or 10 percent decline in the average value of your home is more than going to make up for a more expensive gallon of diesel or case of beer

Well, OK. It doesn't seem that way though. As the value of your home goes up or down, your property taxes follow suit, but not your mortgage payment. That might change every 10-20 years. With energy and food costs rising (not spiking, IMO) we feel the inflationary pinch in the things we buy every day. We do not buy houses every day. Not all commodities are up, i.e. metals (strange, as people are stripping foreclosed home of copper wiring!) but as the tireless industrialisation of emerging economies continues there will no doubt be higher demand and higher prices for those goods as well.

Perhaps this serves as at least a slice of proper evidence to my anecdotal theory that inflation is being understated, or under reported by the government. Change the metrics around and the numbers can give you a very different answer. As noted in the Brudaimonia post linked above, Many of the suburban, sub prime households are now spending a greater share of income on transportation than housing, while the gov't measures transportation fuel costs as 5% of a household spending.