By Gary Brode
The U.S. Bureau of Labor Statistics reported a May Consumer Price Index (CPI) of 8.6%. This was above last month’s 8.3%, representing an increase in inflation as opposed to the hoped-for decrease. Market forecasters were expecting 8.2%. and Yahoo Finance described the 8.6% number as “unexpectedly” high.
This wouldn’t have been “unexpected” to any reader of DKI as we’ve been preparing subscribers to invest for higher-than-expected inflation since last November and have had a huge market short position since the first week of January due to the same thesis (high inflation forces the Fed to raise rates which takes down stock prices). Let’s go through the details and our calculation of real CPI:
Headline number is 8.6% and we note that the actual report from the Bureau of Labor Statistics admits that there were 72 “adjustments” to pricing. We reiterate our skepticism that the government is adjusting inflation statistics upwards making inflation look worse. Of greater significance, we look to the housing inflation number (termed “shelter” in the report) and find exceptional amounts of nonsense. We’ve been writing about the enormous difference between actual housing costs and the CPI’s owners’ equivalent rent numbers for months. Today’s CPI showed an increase in the price of shelter of 5.5%. We’re asking any of you who have bought a new home or rented a place in the last 12 months: Do you believe housing prices are up only 5.5%?
The more-accurate Case-Shiller Index shows housing prices up 20.6%. That number is always a couple of months behind, but even delayed, is more accurate than owners’ equivalent rent. At 33% of the CPI, actual housing prices would add another 5.0% to the index bringing it to 13.6%.
Gary will be speaking with Invested.dk about oil, gold, currency, and portfolio hedging on Tuesday, June 28th at 2pm Eastern time. If you’d like to listen in, REGISTER HERE: https://attendee.gotowebinar.com/register/6123050936335466510 .