CNBC: Consumer prices (CPI) increased 6.5% annualized through the first five months of 2021, and core CPI rose 5.2%. June data is not available. Policymakers have called the jump in consumer prices transitory, citing the surge in used car and truck prices and airline fares as examples. Yet, overlooked or ignored in the analysis of inflation is the relatively small gain in owners’ housing costs when housing inflation is hitting record highs.
The owners’ rent index became part of the CPI in 1983. In the near 40 year history of this series, there has never been a single year the core inflation ran 4% or higher, and owners’ housing costs didn’t match or exceed the core rate. In the first five months of 2021, the owners’ rent index ran 300 basis points below the core CPI inflation rate. But it will catch up soon.
An article published by Fannie Mae on June 9 stated the “lagged effect” from house price inflation will soon flow into the reported inflation measures, and the increase in implied owners’ rent could more than double from 2% to 4.5% in the next year. Owners’ rent weight in the CPI is six times the combined weight of used car and truck prices and airline fares. As such, the transitory inflation of today will become persistent inflation tomorrow.
Opinion: Excerpts “The 1% and Revelation: Do Not Harm he Oil and Wine
Revelation 6:5-6: The Black Horse Rider carries scales with which to measure the comparative value of money and food (Matthew 24:7b).
When He opened the third seal, I heard the third living creature say, “Come and see.” So I looked, and behold, a black horse, and he who sat on it had a pair of scales in his hand. And I heard a voice in the midst of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not harm the oil and the wine.”
A quart of wheat, representing one person’s food for the day, will cost a day’s wages. But many will be forced to buy barley, a less expensive food usually used for animals. Three quarts of barley will also cost a denarius, but only the 1% will still be able to afford the luxury of oil and wine. Affordable access to economic commerce will be strictly limited.
Now the true picture of hyperinflation emerges, that a person will be forced to work a full day to have enough money to feed themselves for one day.
This economic event can happen suddenly following war and pandemic with the collapse of a major currency. When hyperinflation grips the world, food prices will rise out of control as happened in the post-World War I Weimar Republic, and in Venezuela today.
The job of the Federal Reserve is to use short term interest rates to control inflation. When the economy gets too weak interest rates are lowered and when the economy gets too hot, interest rates are raised to cool the economy.
When prices rise in an out of control fashion, hyperinflation will render Fed policy useless. The oil ones to prosper will be the ‘oil and wine’.
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