I read in various places that rent is going up because people are turning to rentals, or “needs to go up” because landlords need to make their finance work… regardless, if rent indeeds goes up, it will lead to higher reported inflations in this country. Housing has a big weighting in the CPI index (30% or so?), but what’s used is “homeowner’s rental equipment” instead of house prices. So last 5 years’ big real estate price run-up didn’t impact CPI much. Now if rent indeed goes up, then that’ll show up in CPI, and that means that the fed needs to raise interest rate! So while at the first glance homeowners/landlords may feel encouraged that rents are going up, hence the relatitve attractiveness of homeownership is getting better, I’m not sure if it indeed is a good thing for housing price.
Of course, they can change the definition of CPI itself, which happened before…
You are right about rising rents causing the CPI to rise, because rents are 30 or 40% of CPI.
But rents cannot rise above wages. Despite what landlords ask… More people are moving out of SD, so I think rents will drop by next year. people in NOD will leave SD also.
I think the Fed has to give up on fighting inflation. They disappointed me by giving a pause. This shows they are NOT serious about inflation at all.
Perhaps, as someone else noted, this fact of being easy on inflation is to blame for the low interest in Treasuries this week. Who wants to keep buying dollars if their value is inflated away by a Fed not serious about fighting inflation and keeping the dollar strong?
I wouldn’t be surprised if they do all kinds of tricks to fool us into thinking inflation is lower. Removing rents from CPI, and replacing it with housing prices, seems like a very good way to do it. Any chance they can get away with that?
There is not a chance they will substitute house prices for rents in the CPI. It doesn’t make any economic sense to include asset prices in the CPI (only goods and services are allowed, and rent IS a service).
Mark my words: if they ever do that, I will publicly retract the above statement, and buy everyone at Piggington a drink. And yeah, I’ll also move all of my assets out of the dollar.
http://www.bls.gov is the oficial cpi website with all the numbers you ever wanted to study. Better grab a bottle of red for this reading.
Here is all the info. you need regarding the rental index in the CPI number. Yes, the Fed. should of tightened. Chasing inflation is harder than crushing it.
when I tell people I want to buy other currencies, they say I should hold only dollars because that is the currency I will be using here. Isn’t it better to trade some euros back into dollars each month, as I need dollars? Comments?
Euros are doing very well against the dollar. In January one euro would buy 1.20 US dollars. Today it will buy 1.29 US dollars. Or all else being equal, you get 9 cents more per euro today than in January.
It makes sense to have some of your funds in euros or swiss francs, for diversification purposes. But keep in mind the transaction costs that you will incurr, especially if you want to trade often, or convert a few euros into dollars every month. The bid-ask spread is not negligible, and your financial institution will likely impose fees on top of that. There are fees for transferring money in and out of your account, plus fees for convertng foreign currency. And because of the bid-ask spread, you will start in the red (at a loss).
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