Friday, April 14, 2017

March 2017 CPI

Um....Hmm... Yeah...

It will be interesting to see what happens to June Fed Funds Futures on Monday...

I'm pretty sure, though, that the drop in shelter inflation is due to over-building in high end urban condo markets.  :-p


  1. "High-end urban condo markets" seems like a misstatement. I think you are instead suspecting high-end urban rental markets, which are showing modest signs of softening, whereas for-sale product, especially at the higher end, is not (click-bait headlines about damped expectations on Billionaires Row in Manhattan notwithstanding)

  2. Egads, what great charts.

    Basically, take out shelter and we are at zero inflation. But Fed officials jibber-jabber about inflation constantly. Has even one Fed official ever said, "You know, if you look at housing, you see property zoning. Look at core CPI minus housing (shelter) and you see no inflation. The battle against inflation is over, at least for now. We should be thinking about growth."

    High-end condo markets cooling off? From additional supply---or a weakening of demand? Are they cooling off from "overbuilding," or are high-end condo markets a canary in the coal mine?

    Please, send a few million high-end condos to Los Angeles. People could afford to live there again.

  3. I wonder how and to what extent these issues would be addressed if the Fed changed over to NGDP growth rate targeting or NGDPLT? New housing construction must appear in NGDP stats. Does imputed rent go into NGDP calculations in any way?

    1. Good question. Imputed rent does figure into NGDP calculations. It's not as strong an influence there as it is in core CPI. So, it's not as big of an issue with NGDP targeting as it is with, say, the Taylor Rule. So many of the criticisms of the Fed during the housing boom rely on the Taylor Rule. Around 40% of core CPI is shelter inflation - most of which is imputed rent. So, when Taylor Rule proponents complain of loose money during the boom, their complaint is largely based on a supply shock that doesn't even require a cash transaction.
      The fact that imputed rent is a smaller part of NGDP helps. And, also, of course, the fact that rent inflation is coming from negative supply issues is at the heart of what NGDP targeting is supposed to solve.

    2. Something about this seems to be double counting. We count car production in NGDP but we don't count imputed car services each year thereafter. Same with refrigerators. If we count the value of new home construction in NGDP (I don't know if we do, but we probably should), then it seems that imputed housing value after that should not be added to NGDP.

    3. Well, the short answer is that the service value is divided between depreciation and net profit to the owner. The former would be the difference between gross and net domestic product. The latter would be considered value added, just like profit from other productive investments would be.


    This a graph of commercial property values through the Great Recession to present.

    Every once in a while i look at this chart, and I wonder what it means. The narrative on US real estate bust is always about the housing prices.

    But obviously there was a very very similar bust in commercial property.

    Then there was also a similar real estate bust in many other nations, such as Spain and Great Britain.

    So, when mining for explanations why in many nations both residential and commercial real estate prices plunged in 2008, where do we dig?

    Kevin Erdmann has taken us a long way to the answers, and the left-wing or right-wing PC explanations surely look like "convenient" narratives, not true explanations.

    I suspect the answers lies in

    1. The Fed is a monetary superpower
    2. Property zoning
    3. Current account deficits

    Anyway, that is my thought for the day

    1. I don't know. I would push back on the bust part. There really wasn't nearly as much of a price pullback in Canada, Great Britain, Australia, etc. Spain, Ireland, and the US are pretty much it. (Maybe Netherlands and Italy if you look more broadly.) So, I would cross out #1. Some of the financial repercussions reached places like Europe, but the bust itself was mostly in the US.


    I mention Kevin Erdmann here and also I dredged up some nice info showing housing on a per-square-foot basis stopped appreciating last May.

  6. I tell you, property zoning is not on the agenda.

    Alex Tabarrok opines agains rent controls.

    Yes, get rid of rent controls. Shouldn't we first get rid of property zoning?

    Not even mentioned. Not in passing.

    1. Don't despair. I've actually been pleased that the housing problem in general seems to be gaining attention.


    rents rising at slowest rate in five years, residential, sez Zillow…

    And commercial property topped out last summer….


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