http://www.nytimes.com/imagepages/2011/04/02/business/20110402_charts_graphic.html?ref=business Until 1983, the Consumer Price Index included housing costs. But then the index was changed. No longer would home prices directly affect the index. Instead, the Bureau of Labor Statistics makes a calculation of “owners’ equivalent rent,” which is based on the trend of costs to rent a home, not to buy... [more]
http://www.nytimes.com/imagepages/2011/04/02/business/20110402_charts_graphic.html?ref=business
Until 1983, the Consumer Price Index included housing costs. But then the index was changed. No longer would home prices directly affect the index. Instead, the Bureau of Labor Statistics makes a calculation of “owners’ equivalent rent,” which is based on the trend of costs to rent a home, not to buy one. The current approach, the B.L.S. says, “measures the value of shelter to owner-occupants as the amount they forgo by not renting out their homes.” The C.P.I. is not supposed to include investments, and owning a house has aspects of both investment and consumption.
The effect is particularly notable in the core index, which excludes volatile energy and food prices, and which the Fed monitors closely. In 2004, when home prices were climbing at a rate of almost 10 percent a year — more than four times the increase in rents — the core index would have been over 5 percent had home prices been included. Instead, the reported core rate was just 2.2 percent.
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