Haven't posted this in a while...
As I've previously detailed, CPI may not reflect actual price levels for an individual who:
- does not own a home
- would like to own a home
- will likely soon buy a home
Why? Full details here, but in a nutshell the CPI measure includes a 'home owners equivalent rent', which has not fluctuated nearly as much as the actual home price level in recent years (both on the way up and on the way down).
The below shows headline CPI vs. a "Case Shiller Price Index" that swaps in the actual home price levels (per the Case Shiller) for the equivalent rent figure (assuming a constant ~25% weighting of owners equivalent rent within the broader index and flat price levels in December and January).
By this measure we see much higher inflation pre-crisis than reported, much greater deflation post-crisis, and the potential beginning stage of another divergence.
Source: BLS / S&P