by Lee Adler
David Stockman’s Contra Corner
House prices comprise the most important measure of inflation that is ignored by the Fed and mainstream economists. It’s not included in the CPI or PCE. Instead, the BLS and BEA use a ginned up measure called Owner’s Equivalent Rent (OER) which has substantially understated actual house price inflation, particularly in the past 4 years.
[…] The OER component of June CPI was +3.2% year over year. That’s closer to reality than the 2.2% reading of June 2013, which didn’t pass the smell test at all as home prices rocketed higher by 15% for much of the year. While somewhat less laughable, the current reading is still 2.3 percentage points below actual housing inflation reported in real time data from Redfin.com. The current margin is actually substantially less than it has been since 2012. At one point in 2013 the difference was nearly 13 percentage points. I call this “ignored inflation.” The Fed and economic policymakers as well as Wall Street economists and talking heads, simply pretend that it does not exist.