CS-CPI Sinks To Negative 5.0%
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The following chart shows the effect if one substitutes the Case-Shiller housing index for Owners' Equivalent Rent in the CPI.
Case-Shiller-CPI (CS-CPI) vs. CPI-U 
click on chart for sharper image.
The above chart is courtesy of my friend "TC" who writes:
For Dec 2008 the CS-CPI fell to a stunning negative 5.0% year-over-year as compared to a positive 0.1% for the CPI-U. Moreover, the Government OER data continues to move higher while home prices continue to move lower amplifying the divergence between the two CPIs to its largest level ever. The CS-CPI now reflects a price level last seen in Dec 2006."Owners' Equivalent Rent" (OER) is the largest component in the government measure of the Consumer Price Index (CPI).
What is equally amazing is that it was less than 2 1/2 years ago (Sep 2005) when the CS-CPI was positive 7.8% year-over-year and we're now 1280 basis points lower. Deflation is here and it's now even beginning to show in the government's CPI-U data.
OER is a process in which the BEA estimates what it would cost if owners were to rent the homes they own from themselves. OER is not a valid pricing barometer.
By ignoring housing prices, CPI massively understated inflation for years. The CPI is massively overstating inflation now.
Data for the above chart is from two sources.
- Case Shiller January 2009 Release
- December 2008 CPI report. See CPI at .1% Annually, Smallest Increase Since 1954 for details.
For more on the methodology behind this post please see the discussion following CS-CPI Negative 3.1% Year over Year in November.
Real interest are very high even at zero percent!
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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