|A Different CPI Perspective |
Here's what it looks like with real housing prices
|Source: Bureau of Labor Statistics, Freddie Mac|
It gets even better. The people at the Bureau of Labor Statistics make qualitative adjustments to goods when they perceive improvements. That is, they adjust the base price of a good or service upward due to quality improvements. This action then understates the increase because of price inflation of the good. The BLS does this with more than 50% of the CPI components! They do not, however, adjust base pricing lower for qualitative deterioration in a product. Steve Leuthold had a great example in a publication recently. Since 1979, the average price of a new car has risen from $6,847 to $27,940, or 308%. But the CPI-adjusted series from the same date reveals only a 71% increase. Therefore, about $16,000 of the $21,000 increase is due to quality improvements and not in price inflation. Ironically, the repair bills aren't deflating. The BLS is now attempting to expand the number of CPI categories adjusted for quality improvement.