How The Fed’s Pro-Inflation Policies Help The Rich

This morning’s housing price data screamed out, “what inflation cooling?” The Case-Schiller index for June came in at an all-time record high and was up by +6.5% over last year.

So if you happen to be a wage worker you’re not likely to be feeling the chill. That’s because the average wage is up by roughly half that amount at +3.7% on a Y/Y basis.

Still, the LTM period in June was only the latest inning in a race that wage and salary workers have been loosing for several decades now. That is, thanks to Fed policies which inflate assets at far faster rates than the price of everyday wages, goods and services.

In the first place, the Fed does not even know how fast housing prices are rising because it obstinately refuses to credit the readily available private sector data on residential housing prices. But as shown by the purple line below depicting the Zillow home price index (which cover single-family residences, condos and coops), the median US price has risen from $124,000 in January 2000 to $362,500 as of July 2024.

That’s a gain of 194% as indexed by the purple line below. During the same 24-year period, however, the CPI for shelter has risen by only 110%, and the PCE deflator version of shelter prices have risen by even less. In short, real world housing prices are up by 2X the level depicted in the “in-coming data” that the knuckleheads in the Eccles Building live or die by.

Of course, the Fed shills on Wall Street will say this mixes apples and oranges—-asset prices versus rental service costs. But over a 24 year period—not so much. That’s because in the long run rents reflect the discounted present value of rental income streams less operating costs.

Accordingly, the fact that the blue line (CPI shelter price) has risen by barely half of the Zillow indexed asset price (purple line) suggests that BLS is up to its usual games. That is, drastically underestimating real world prices for the actual carry cost of home ownership. Indeed, the CPI’s OER index (owners’ equivalent rent), which the Fed implicitly swears by, is beyond goofy. It’s based on a survey of a few thousands home owners who are asked what they would rent their castle for if, presumably, they decided to pitch a tent on the sidewalk and become the landlord of their own property.