Sunday, January 18, 2009

CPI and Housing

Econompic has some interesting charts on the latest CPI release. Here is a breakdown by major component:


How is it possible, you may wonder, that housing is up around 3% in the last year, during a period when home prices have experienced historic declines? The answer is the housing component of the CPI looks at rent value rather than ownership (there’s an excellent explanation on this Big Picture post).

Housing is the largest component of the CPI. Now that effective rents are falling, it’s very likely the CPI will continue to decline.