🏡Inflation Data Is Incorrect. The Truth Is Terrifying!
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You’ve read the news. The Consumer Price Index (CPI) increased by 6.8% YoY in November. That’s a 40-year peak!
What is driving 6.8% inflation?
It’s mostly gasoline and used cars.
Gasoline prices have soared due to OPEC artificially constraining supply. Plus, we’ve had a massive spike in demand.
Used car prices have skyrocketed because a global shortage of computer chips slowed down new car production. Did you know that modern cars contain more than 3,000 chips?
However, inflation is not being calculated correctly!
The Truth Is Even More Terrifying
Let’s look at Housing, as it is the largest component of inflation.
CPI says housing inflation only grew by 3.4% YoY in November!
We know that housing grew by much more in the last 12 months.
Where is CPI data going wrong?
Let’s unpack Housing CPI, which is divided into two categories:
Rented Housing CPI
Owned Housing CPI
1. Rented Housing CPI uses antiquated data collection processes
Here’s a comparison between the CPI & Zillow’s rent calculation methodology:
CPI surveys 32,000 houses. Zillow looks at all 100,000,000 properties in its database.
CPI runs its survey once every 6 months. Zillow relies on real-time data, and calculates rent changes every month.
Zillow shows 4x rent growth in 2021 compared to CPI!
For more details, check out Anthony Pompliano’s excellent post here.
2. Owned Housing CPI collects the wrong data
The CPI calculates the cost of owned housing by asking homeowners how much they would charge to rent their home.
Therein lies the core issue: Most homeowners don’t know how much they would rent their home for, because they are not participating in the rental market.
Unsurprisingly, home prices grew 6x this year as compared to CPI!
CPI might decrease in the future if gas prices go down & the car chip shortage is resolved…
However, real inflation is here to stay in the 2020s
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