The latest Consumer Price Index registered a 12-month rise of just 5.0%. For many Houston homeowners, that percentage is hard to square with the prices that keep ringing up at local gas stations. Five percent inflation doesn’t seem to match what’s been happening to a dollar’s purchasing power.
But actually, the CPI number isn’t deliberately deceptive.
True, Houston residents have experienced a leap in fuel prices—and all of a sudden, many have found themselves double-checking their grocery store register receipts. Since the Bureau of Labor Statistic’s own breakdown of price inflation shows Gasoline at a teeth-grinding 56.2%, family drivers whose Memorial Day and/or Independence Day weekend outings involved multiple fill-ups were especially skeptical. Ditto if their holiday weekends involved the acquisition of Sporting Goods, which posted a 9% increase. If the weekend included an urban getaway, the Public Transportation increase (+15%) could even have prompted an unanticipated ATM visit.
The way that the “all-in” inflation number is calculated is dictated by what the Bureau’s CPI is intended to measure. The Index measures “consumption items”—the things a family consumes (that is, that it uses up). So how do housing increases weigh in? That’s a little tricky (it’s the Shelter component).
When a consumer buys a house, the amount spent doesn’t get ‘used up’ by living in it. In fact, as a capital good, the purchase amount stands a good chance of growing in value. So the investment portion of owned housing can’t be part of the CPI. To include the nearly 24% rise in last year’s existing home sale prices would wildly distort the CPI, rendering it nearly valueless.
But for renters, since the cash spent on their rent payment IS consumed entirely—their Shelter component is a significant part of the CPI—and May’s year-over-year figure registered a rise of 2.2%. For homeowners, an estimate of the amount their owned house might rent for (its rental equivalence) is included in their Shelter component.
When you dig down into what makes up the CPI, you realize why the 5.0% number that’s all over the news sometimes doesn’t jibe with what it feels like. But perhaps more importantly, the details also indirectly reveal the outsized financial advantage that goes with owning a home. Call Rinnovare Realty, LLC at (832) 445-4957 or visit us at: www.rinnovarerealty.com and see how we can help you.