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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (27359)2/28/2005 1:37:05 PM
From: John Vosilla  Read Replies (2) | Respond to of 110194
 
Anybody out there actually think inflation today is lower than five years ago when fed fund were at 5%, the 10 year at 6% and 30 yr mortgage rates at 8%?



To: CalculatedRisk who wrote (27359)2/28/2005 2:09:49 PM
From: BSGrinder  Respond to of 110194
 
Wow, that chart shows that, using housing prices, inflation has almost tripled, to nearly 6%, since 1997, instead of being flat. Imagine what the rate would be like without substitutions (hamburger for steak) and hedonics (computers and cars are actually cheaper because they are better). I have read that each of those adjustment techniques subtracts over 1% from the CPI. That would put inflation at 8%, which sure feels more like reality. And that is without even factoring in food and energy. Hmmm. /BSG



To: CalculatedRisk who wrote (27359)2/28/2005 2:11:28 PM
From: John Vosilla  Read Replies (2) | Respond to of 110194
 
Last year, the Fed acknowledged that CPI was probably somewhat understating inflation because of the rent calculation ... and interestingly, that if interest rates rose, CPI would go up at first as rents rose in relation to housing prices.

Bingo. High interest rates coupled with tight credit creates greater demand for renting versus owning and thus pumps up the CPI and further fuels the rise in long term rates.


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