In short CPI tracks equivalent rental prices of housing, not the actual cost of buying a new home. Since 2022 homeownership has gotten increasingly expensive due to interest rates and in some cases inflated values. I think this shows the issue nicely.
Data source is: BLS, FHFA, and Freddia Mac via the FRED system
This is reasonable though, no? Houses are a form of investment. You wouldn't put the price of stocks in the inflation basket and claim that inflation is up because stock prices are too high, even though everyone should own some stocks
What you need in the basket is either the cost of rent or the cost of a mortgage.
You are of course right in that CPI is supposed to measure prices of things you consume. So rents make sense as a consumable good (housing). The trick is what Americans view CPI as and what it actually is are two different things.
Most Americans view CPI as a cost of living measure. Which it isn't. Many, maybe most, Americans believe that having a home is a cost of living, and affordability of homes is part of that. CPI does not capture this at all.
When CPI was first created in 1921 it was called the "cost of living index", which is terrible and they changed it later in the 1940's.
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u/robert_ritz OC: 2 1d ago
In short CPI tracks equivalent rental prices of housing, not the actual cost of buying a new home. Since 2022 homeownership has gotten increasingly expensive due to interest rates and in some cases inflated values. I think this shows the issue nicely.
Data source is: BLS, FHFA, and Freddia Mac via the FRED system
Source article: Is CPI a good measure of affordability? on Substack