i’m actually semi-optimistic about inflation going forward. i think it’s understated now by a large margin, but i think the next recession will get us back toward something more normal. recall that owner equivalent rents comprise 24% of the CPI. while this has helped understate inflation for the last 10 years – because as we all know real housing prices have gone through the roof relative to rents – when housing prices start dropping, the reverse will be true: owner equivalent rents will overstate inflation. also, aggregate commodity prices will likely drop in the next recession. so, while real inflation does look bad right now, i’m actually mildly sanguine going forward. now, if we could just get the government to stop cooking the figures… that would be something.
