The BLS finally changed one of my pet peeves in the CPI. But the “hedonic quality adjustments” will continue until the mood improves.
By Wolf Richter for WOLF STREET.
The Bureau of Labor Statistics is finally going to change the component of the Consumer Price Index for New Vehicles that has vexed me since Adam and Eve. It’s going to change it in two big ways: The way it collects the data, and the way it figures the CPI for new vehicles. The BLS announced the final changes in March last year. The new version will be included in the CPI for April 2022, to be released in May. The data for the new version, going back to December 2007, is going to blow your doors off in a moment.
The BLS is going to switch to transaction-based prices for new vehicles. It purchases the data from J.D. Power. I have been producing charts with J.D. Power’s Average Transaction Prices for a while. The BLS will abandon the old survey-based method of asking dealers about the prices of hypothetical vehicle configuration. It will also make changes in the way it calculates the CPI for new vehicles.
The coming version of the CPI new vehicles spiked by 15.9% in December from a year earlier (red line), compared to the current version’s 11.8%, which had already been the biggest spike since 1975 (purple line).
If this new method – officially called “Research CPI-U-NV” – had been used last year, the overall CPI for December wouldn’t have been 7.04% (rounded to 7.0%), but something like 7.16% (rounded to 7.2%).
Whatever higher or lower CPI this new version might produce in the future, it picked up on the current price spikes much more than the classic survey-based method.
But from the index in its cumulative form, with both the classic CPI-NV and the R CPI-U-NV indexes set at 100 for December 2007, we can see that the new version doesn’t always produce higher CPI readings, and in fact produced lower readings some of the time. But it sure picked up on the current price spikes:
The “R CPI-U-NV” is the first CPI component based on real transaction data, rather than surveys. As such, how calculations are done changes too. And that gets too deeply into the weeds for us real people here (but if you’re into recreational juggling of CPI-math, you can check out the changes at the BLS).
The classic CPI for new vehicles has long been one of my pet peeves for a variety of reasons – including the aggressive “hedonic quality adjustments” that the BLS uses to turn sharp price increases of actual vehicles into price decreases for CPI purposes.
But there is no escape from the “hedonic quality adjustments”: they will also be applied to the new R CPI-U-NV.
The conceptual reason for hedonic quality adjustments is that a 2022 model year F-150 is a much-improved truck than the 1990 model year F-150.
I know there are lots of people who think that their own 1990 model was the best vehicle ever built and it still runs great, and they’ll never sell it. But today’s trucks have a 10-speed automatic transmission, compared to the four-speed at the time, they have a gazillion airbags, disk brakes on all wheels, a back-up camera, Hill Start Assist, a fancy-schmancy infotainment system that couldn’t even be imagined in 1990; they’re bigger and more powerful and more economical, and have myriad other “improvements.”
Whether you want them or not, these improvements have a cost, and they change the vehicle. But the CPI tracks how much it costs to buy the same product over time. And when improvements are added, the estimated costs of the improvements are removed from the CPI calculation. And this will continue with the new version of the CPI.
This disconnect between the soaring prices paid by real people and the CPI for new vehicles, which had long periods of declines, even as actual vehicle prices surged, incited me a few years ago to come up with my own annual price index for new vehicles.
The WOLF STREET F-150 XLT and Camry LE Price Index tracks the MSRPs of the bestselling truck, the F-150 XLT, and the bestselling car, the Camry LE, going back to 1990, and compares the prices to the CPI for new vehicles. The whole operation was upended, however, when people suddenly started paying $2,000 or even $10,000 over MSRP last year, the craziest situation I’ve ever seen. My index didn’t pick up those addendum prices, but even the classic CPI for new vehicles picked some of them up:
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I’d bet money that they are going to consider driver surveillance a feature and hedonically adjust the cost of the car downwards. Brought to you by “Build Back Better”:
SEC. 24220. ADVANCED IMPAIRED DRIVING TECHNOLOGY.
(a) Findings.–Congress finds that–
(1) alcohol-impaired driving fatalities represent approximately 1/3 of all highway fatalities in the United States each year;
…
(5) to ensure the prevention of alcohol-impaired driving
fatalities, advanced drunk and impaired driving prevention
technology MUST BE STANDARD EQUIPMENT [emphasis, mine] in all new passenger motor vehicles.
…
The term “advanced drunk and impaired driving prevention technology” means a system that–
(A) can–
(i) passively monitor the performance of a driver of a motor vehicle to accurately identify whether that driver may be impaired; and
(ii) prevent or limit motor vehicle operation if an impairment is detected;
ivanislav,
If the technology shuts down drivers who are texting, I’m all for it. They are almost worse than drunk drivers. I won’t ride motorcycles due to the current road conditions (distracted drivers).
support….
As a cyclist, I would love similar tech that shuts down texting drivers too! However, the problem is slippery slope. As soon as you introduce that then you have DUI blocks, distracted driving blocks, etc.
What if they are playing with their hedonistic in dash 8 x12 touch screens to set car performance parameters, myriad “creature comforts” like temp regions/air flow, or sound system to get them all just the way the personally want it? Or even just monitoring it all?
I know at least one guy who has his kid blow for him in the breath- test immobilizer they install in some convicted DUI. It is very expensive btw.
Trivia: It may be theoretically possible to test the alcohol % in the air of a car’s cab without entering the car, stopping it or winding down the window. An EM beam would pass through the car’s glass as it went through intersection (best narrow) and be detected on other side. Alcohol should alter spectrum?
Everything can have problems. Imagine a designated driver in a car full of drunk passengers. Or imagine driving somewhat erratically because your spouse is having a heart attack and you’re trying to get him/her to the hospital. And then your car, in all its inanimate wisdom, decides you have to sit on the side of the road.
Would be like child’s play for any EE or even good electronic tech to design. Probably using all off the shelf stuff.
But other’s have pointed out some of the practical problems of using it, although a next level system could maybe readout from an inch in front of the driver’s mouth only, which might work.
I’m not totally against the concept. Prevention of drunk driving could save the life of a family member some day. I imagine there is nothing worse than losing a loved one to a drunk driver.
What baffles me even more is why drunks give up that data on a daily basis right now to anyone who wants it.
My advice to drunk drivers…shut your phone off!!!
The bill you are referring to is dead for the time being and I doubt it would ever be implented in that form. I can think of about 10,000 bigger problems to worry about than that one….
No, it already passed – I think it was called the Infrastructure Bill. Maybe I made a mistake by calling it Build Back Better, I thought that was his whole “plan”.
“passively monitor the performance of a driver of a motor vehicle to accurately identify whether that driver may be impaired.”
Which means they can monitor you whenever you are driving, even without a search warrant. Big Bird is watching.
BTW, I am totally against impaired operation of a motor vehicle.
Yep, and a way to start taxing vehicles based on mileage. Which they will need to do as more and more EV hit the road.
“impaired operation of motor vehicle”
I worked graveyard for 15 of my last 17 clock punch years (extra pay and ease of week day shopping/purchases for my off grid project) and I can guarantee that (especially after that first morning back at work) all of us were from time to time as dangerous as someone with more than twice the legal blood alcohol limit. I doubt anything has changed.
Side note; work start times made it hard for us to communicate, too. We’d say things like, “You mean on Tues for Wed?”
The English language has today, tonite, and tomorrow…..but no “tomorning”.
Where I live the Chinese cause all the accidents but it doesn’t show up in the statistics because they hit someone else Chinese and exchange cash. No insurance companies are ever notified.
Uh, do you live in China?
And in either case, how are the cops kept out of it?
hedonic quality adjustments. Because we voluntarily select all those mandated new “safety” features. Personally, if my car is going to slam on the breaks while I am trying to maneuver to avoid an accident, I can do without that hedonic quality.
Wrong ivanslav.
It was just “brought to you” by a slightly different combination of corporate and other wealthy lobbying groups than the ones who brought you “MAGA”.
Offhand, I’d guess the car manufacturers for SURE, in keeping with the topic of the article, and you might know of or suspect some others.
Just follow the money.
BTW, I got into the “weeds” and found there is a term, if not discipline, in Economics called “Cost of Living Theory”, and many of it’s other practitioners are cited all throughout the “working paper”….and it was also noted this new system is subject to further “feed back”, which makes it a “working paper”. And no, it isn’t just a government thing, corporations also produce them using their own “Cost of Living” Economists, for the further consideration of our legislative bodies….and for “debate” purposes, I suppose…….
I’ll be driving my ’03 Accord until the wheels fall off.
Firing up my ’96 Camaro. And, my 2000 SS V8.
B
Lucky, especially the latter. Sweet!
I have bowtie envy…
Brewski,
Roger that, – my 2002 Z-28 with a Corvette LS1 drive train is all I need, and I can keep it going forever, and can turn wrenches with the best.
I have seen more dangerous teens yacking/texting on cell phones that are way worse drivers than other impaired drivers, – saw one guy watching a movie at a stop light! – many times came close to getting crashed into by these fools.
Back in my day they said a radio was too distracting – LOL, – I quit riding motorcycles like another poster said because folks are “loony tunes” driving vehicles with so many distractions.
My 2005 Mustang has only 64 K miles on it and I have it in perfect shape. That’s my long term daily drive.
I’ll be driving my ’91 Accord till the wheels fall off…..
415K miles, Wheels Still on……
Will they have the common sense to replace the survey based method for computing home/rent inflation as well?
It’s become a joke, which means the CPI is also a joke.
They will adjust the method once home prices and rents start falling. Given that OER lags movements in price levels, they will thus get all the inflation understatement on the way up from their old method, while getting all the deflation punch of the way down with their new method, double win for low CPI.
It’s madness for any consumer to pay up to $10k over MSRP for any car!
Especially when you can go on Lease Hackr, go to the Northeast section of Marketplace and find Audi, Acura, BMW, Volvo, etc discounted off MSRP.
I just bought my wife a new XC90 Inscrition for 3% off MSRP minus incentives in Atlanta. I could have got the same car in NY/NJ on LH for 6% off but I was trading her XC60 lease in for $5K in positive equity.
The two best places to buy a new vehicle in this country are SoCal and VA/NY/PA/NJ.
The survey-based method of asking dealers about the prices of hypothetical vehicle configurations sounds like LIBOR for cars (CARBOR…CARLIAR)?
It will be interesting to see how the transaction-based pricing for new vehicles from J.D. Power charts out in the coming months.
Glad I bought a 2020 Nissan Versa in January of 2021. The car was a stick shift that had been sitting on the new car lot for over a year. Nissan gave me $50 to take a test drive and the dealer knocked $2000 off invoice, not sticker, to get rid of a stick shift car nobody else knew how to drive.
Kelly Blue Book tells me I could make $500 if I sold the car today.
It’s crazy town for cars, houses and stocks.
JD Powers method is a “survey”, too….just a different “Cost of Living Theory” as applied to cars. Just hit the BLS link and check out the “weeds”.
It’s not a survey. Transaction data — the actual data — in the auto industry is widely captured by the software systems dealers use in the ordinary course of their business. In real time too. The software providers capture this data and collect it and distribute it.
I’ll have more on that on Friday with an article on inventories, from dealer inventory software systems. This is has nothing to do with surveys.
US 10Y up to 1.87%, banks panic. including regional banks.
I know, the market is so volatile over very small and somewhat insignificant rate adjustments.
The 10 year should be trading at 10%+. 3& above the inflation rate.
The Fed is gutless and can’t let it happen.
Ultimate results: Hyperinflation. Welcome to Weimar 2022. Or Soylent Green the movie.
Cheers,
b
I thought bank stocks go UP when interest rates increase?
Who cares what the charts say?
Nothing seems to change anything. still printing $$$
and creating inflation to enhance personal holdings, correct?
What’s the plan? if any to fix all this? None?
The price of a new car is rising faster than wages. Today’s Washington Post has an article about Florida housing prices rising faster than wages.
Employers can not find cheap workers as workers can not find cheap rent.
Obesity is an epidemic. It may result in medical conditions that prevent people from working. Workers are also out sick five days, if someone in their household tests positive for the virus.
“Workers are also out sick five days, if someone in their household tests positive for the virus.”
Go full-clinton: don’t ask, don’t tell.
A car is just a tool, same as my table saw. That is unless we can be convinced that cars are a symbol of our worthiness. We can finance over 6-7 years now, and so some of do. It puzzles me that someone can feel “status” right after being ripped off royally. And for those hedonic adjustments, if only I could buy that 1st car again. An Accord for 8K that ran over 200k miles with little maintenance. Why would the CPI compare to something that no longer exists ? Good artcile Mr. Wolf
Maybe the hedonic adjustments are why old used cars prices are in orbit due to “big brother” not having the ability to remotely shut off your car plus not having the ability to report your speed to police if there is an accident plus not having the ability to track everywhere you have been (don’t forget to turn off your phone gps) George Orwell had everything right except for the year. I have not even commented on electric vehicle replacement battery costs and what that does to the long term value of EV cars
I always have a look at laptops, for the last twenty years a decent one cost about a 1000 GBP, same in dollars. Getting cheaper to produce and also better. Now though they aren’t really getting all that much better and already detached from the ~1000 and starting to price up like everything else.
LordSunbeamTheThird,
I’ve often intended to ask about your handle. Is it in reference to the car or something else? Sunbeam Tiger…that was a cool car.
I’m old enough to know!
I remember a LordSunbeam playing the old game “League of Legends”.
Was that the car in “Downton Abbey”, with the luggage strapped to the rear end of the car?
Not a direct reference to anything i like the Flashman books though, prob. came from that while typing in pished for fake hauteur.
Maxwell Smart drove one, but I only watched it to check out 99.
I just have to mention this….
I went to Walmart for groceries as I do all the shopping (wife handicapped). Prices are going up on everything….meats, paper products, bleach, etc. But this one got me:
Walmart house brand (Great Value) yogurt, small 4 carton, 24 oz total (6 oz each), usually $1.24, now $1.78 …..40+% increase. Nuts.
Be glad WM is not selling cars.
So the old Secret deodorant was 2.6 oz, the new one 2.1 oz. It may still be strong enough for a man, but now it’s made for a midget.
LOL 🤣
It reminds me of 70’s food inflation, in that you would sometimes see as many as 3-5 price stickers on items in keeping up with inflation, it was hard work compared to now where the price is merely updated on a computer and pretty much left to our memories of what things used to cost.
Across the board my food costs have gone up 25% in a year.
“C’mon, man, it’s just transitionalitory man.”
The claim was the semi-conductor chip issue would be fixed early in the new year-about 4 months ago, but every new car dealer looks as if their place got raptured, there’s no there, there.
Yeah, I’ve heard some analysts saying 2023 now. Welcome to the new normal
I wonder if they will apply “hedonic quality adjustments” to things or services that went down in quality. For example, I was able to book Southwest roundtrip flights to Hawaii for $198 (OAK-HNL) and these tickets used to be close to $500 or $600 (in the summer). Of course, COVID and competitions are the reasons why it’s so cheap now. Also the time of my flight is at the end of February so it’s not prime vacation time. However, when you compare flight ticket costs now to 30 years ago, there are some differences. 30 years ago, I remembered getting “free” food and drinks. I also remembered not paying for check-in fees, change fees, and all these miscellaneous security/TSA/groping fees. In addition, I remembered the seat space was better/bigger (maybe I was younger and skinner) and we didn’t have so many flight cancellations!
Airbus patented a “stand-up” seat where you kinda rest your butt on a little pad years ago…..but so far, so good, for you travel fans, it could be worse.
If any of these govt indexes were real we’d all have to turn our desktop screens 90 degrees so there would be room for the massive upswing in all of the charts. You might even have to take your second monitor and stack it on the main one. Welcome to Weimar.
That’s a significant change and very encouraging.
I wonder what made them change. Maybe they’ve been reading Wolf Street charts.
I agree with you there. If the government’s economists are reading Wolf’s blog without telling anyone then I am DEFINITELY in the right place.
Kind of off topic, but the gov free c-vid kits site opened early today (was slated for Wed) so each household can get four free tests. It may not seem like a big deal, but there are no test kits available for sale in our area and it took a friend 4 hours and hundreds of dollars to get one at the hospital last week. Good to have a few available…easy to sign up…why not…¯\_(ツ)_/¯
I just signed up for 4 to be mailed. Thanks for the tip!
Been listening to Dr. Peter McCollough and Dr. John Campbell. Omicron is so contagious and now is more prevalent than common cold, that if you get runny nose, sore throat and headache just assume you have it and isolate.
Dr. McCollough has list of six over the counter things you can take to get through it quicker.
OTC “symptom meds” is garbage for idiots….does more harm than good, and is not cheap…save that money, eat the hi-cal comfort foods you feel guilty about normally (like ice cream), take vitamin C, drink LOTS of water and REST…..max sleep. Let your body do it’s thing.
All the commenters who testify to their vehicles’ durability are the lucky ones. An estimated 1 out of 100 vehicles that come out of the factories are lemons. They’re flawed in some fundamental way. I’m still wary of buying American. Their shoddy years in the 1970s reverberates down through the timeline to this day. However, it must be admitted that GE and Ford have made a comeback of sorts in recent times.
Not really. Wolf does an occasional post about the durability of cars and how long the average one has been on the road. It is a number that has been going up ever since the late 80s. The average age of the U.S. fleet of cars is currently at its peak.
So if “1 out of 100 vehicles that come out of the factories are lemons” then the one person who gets one is UNLUCKY…
1.Paying 30 years for an >$100K average car
2.Driving old clunker of ’92 vintage
3.Having a new car infested with fleas (I mean chips) which sometimes work as intended but oftentimes dont, causing outrageous repair bills
4.Becoming a lowly pedestrian
5.Using public transportation
6.Completely stop locomotion of any kind and begin a new life in Metaverse
Well,if those options are not for you-Johnny Cash in “One Piece at a Time” explained how to get out of this predicament:
……………………………………………………………….
Well, I left Kentucky back in ’49
An’ went to Detroit workin’ on a ‘sembly line
The first year they had me puttin’ wheels on Cadillacs
Every day I’d watch them beauties roll by
And sometimes I’d hang my head and cry
‘Cause I always wanted me one that was long and black.
One day I devised myself a plan
That should be the envy of most any man
I’d sneak it out of there in a lunchbox in my hand
Now gettin’ caught meant gettin’ fired
But I figured I’d have it all by the time I retired
I’d have me a car worth at least a 100 grand.
So the very next day when I punched in
With my big lunchbox and with help from my friends
I left that day with a lunch box full of gears
Now, I never considered myself a thief
GM wouldn’t miss just one little piece
Especially if I strung it out over several years.
………………………………………………………
If you sign up as a $17 per hour temp at GM assembly line NOW-you’ll finish your project by April 15 aka “Steal Something From Work Day”
Where I live there’s a luxury tax on cars that sell for more than $100,000 Canadian.
Thats the right spirit ! Some people try to avoid paying property taxes and use their cars as primary residences.Let’em pay luxury tax on their new >$100K cars too !
I read that in NYC there is a “mansion tax” on residences costing >$1M
Now that the price of every windowles 4′ x 4′ tool shed skyrocketed past $1M mark (and keeps skyrocketing) –
every homeowner wallows in abject luxury and must pay for it.
Our Wal-Mart parking lot is always full of those damn lazy property tax cheats re-doing their decor…more all the time. Fox is starting to refer to them as “Armies”, but I’m not so sure they have a command structure.
Nearly every product hits the point in the cycle of improvements where everything important has been done and it is as close to perfect as it will get. Everything after that is not really an improvement but “gingerbread” or “gee gaws”.This definitely true of musical instruments, hand tools, and computer operating systems. As far as cars go that point was reached with the Mercedes W124 chassis in its final years ( 1991-1993 E class. Independent suspension, disk brakes, air bags, headlight wipers, fuel injection, and aerodynamics superior to nearly every car made today. Plus many things yo no longer get like a real spare tire, power antenna and spring/horsehair seats good for a million miles. My wife gets a new car every few years and none of them are as good as my 93 Benz.
Power antenna.
Before moving to an M4 in May 2020, I had a few Lexus SC400s. The engineering on the early 1990’s SC400s was state-of-the-art.
The doors are long, so the engineers used an articulated door hinge set-up. Simple and brilliant. My M4 also has long doors, but BMW did not follow the Toyota design, and so the doors swing open a bit wider to give the same space for egress & ingress.
But the most simple and smart piece of engineering was the FM antenna. It is a power antenna: fully retracted when the FM radio is off, but since it has a motor, and since the wavelength of the frequency on the FM dial changes, so does the antenna length when you switch stations! However, the antenna only moves when the changed frequency is large enough to matter. So a minor move of the radio dial and the antenna stays the same, but a couple MHz, and the length changes.
The SC400 (1,635 kg) and M4 (1,605 kg) weigh the same. Both are fantastic sport coupes. Driving the side streets to my local shops in either one of the cars isn’t that different; they’re both excellent. But driving them on the highway where performance above 100 kph matters, is like night and day difference.
From the moment I drove my 2016 M4 on a test drive, I was hooked. 425 hp & 406 lb-ft vs 250 hp & 260 lb-ft? Yup, I’ll go with the 425 & 406 please.
My SC400 (and donor parts car) still works great and is owned by my neighbor across the alley. He loves it!
That said, I just ordered new tires & wheels for my 2006 Chevy Silverado 1500, and redid the brakes all around. That is the most basic truck there is, and it is perfect for its job – a work truck for carrying stuff. Two grand invested vs fifty grand (or more) for a new one? I’ll go with the two grand, eh?
“Smart piece of engineering”??? Why didn’t it “catch on”?
Give me a quadruple folding tail gate any day.
Car prices where the reason why I became a mechanic as a kid of 13. Back then I thought $1,000 was way too much for a used car so I bought them broken but most often some simple fix and sometimes a hard fix. I learned fast.
Now? I still do the same. Some months back I Bought a 95 F 150 Ford XLT 5 Speed with a Blown Clutch and a Jammed in gear Transmission for $500 the asking price. No rust Great seats and Body 130 K miles original and had it towed with my AAA.
Installed a Used Top cover ($15 Pick-n-Pull) on the trans and a New Clutch set I got off eBay for $50
with shipping. It’s the 4.9 6 Cylinder 2 WD with tow Hitch and 6 Ply Tires I spotted it on Craigslist an hour old and grabbed it.
Runs and drives like a new truck after 2 days’ work on it and yes, I ran the motor before I bought it but up on jack stands as the rear wheels were turning.
Why Post this? Because because the Economy is not going to change Fast to Normal and perhaps some creative thinking to all manner of things may apply.
Getting Mad (something I admit it do) is not going to help, most likely nothing well help things go back to normal, but you can learn to live with it.
Quitting Your Job may be the first step and that a Big one. Just figure if making someone else Money is making you less and less and less
That 4.9l big six is extraordinarily durable. I’ve had to plug the dipstick tube against bottom pressure in old wore out engines, always started and ran. A buddy forgot the drain plug and drove a hundred miles bone-dry, no problem. Wouldn’t try that with my ’98 taco 22r or ’07 e-250 4.6l. Contractors preferred them to V-8s, employees didn’t tear them up as quickly. Right up there with the slant-6 225ci.
Is the market entering another taper tantrum? The 10-year treasury yield has risen from a low of 1.34% on 12/2/21 to 1.89% today, a climb of 0.55% in 6 weeks. In recent years, this was rivaled only by the big spike in Spring 2021 (1.00% on 1/26/21 to 1.75% on 3/17/21) as the American Rescue Plan sped through Congress & sparked inflation concerns.
Previously, any time the 10-year yield approached the 1.75% resistance level, investors would rush back into bonds, believing waves of covid variants would force the Federal Reserve to delay tightening. I guess 3 straight months of solid job growth & high inflation numbers in the face of Delta & Omicron, along with Federal Reserve officials’ seemingly firm commitment to start lift-off in March, finally gave markets a wake-up call.
1.89% is still historically very low, just the recent pace has been blistering (hence the “tantrum.”)
This looks like a great time for Weimar Boy Powell to print some more. He see, he like, he print.
The core problem the BLS faces is there are few products that remain the same from year to year. You couldn’t compare a buggy whip in 1920 to one in 2020 or compare an iPhone in 2020 to one in 1920 (???). BLS kinda fudges through this with various tricks, but the crux of it is that consumer prices aren’t fundamentally a valid way to measure inflation.
CPI stands for Consumer Price Index. It was supposed to do just that – measure consumer prices. It wasn’t originally designed to represent overall inflation, it just kind of rhetorically morphed into “inflation” through sloppy usage. So now we have the tragicomedy of statisticians trying to turn it into that.
Surveys are prone to error and biases. Surely the next step is to replace the rent surveys with a more empirical and robust data collection method. Rental inflation is understated using the current CPI methodology.
I am a bit of a car nut and I really the sports cars of the late 50’s thru the mid 70’s. At the price of a new car it is lots of fun to drive a restored classic.
Mix in a little of the old [outside] with a little of the new [inside] and you can have nice custom ride. Mine is a 1973. No gov tracking.
This would be huge for the owner’s equivalent of rent, if they actually want to chose house prices. But then every time the housing market goes down, CPI goes negative. And that would be a problem. It would have gone big-time negative in 2006-2011 had actual home prices been used instead of rent-based owner’s equivalent of rent.
Higher inflation due to adjustments? Biden will not be pleased.
Wolf, can you add the “Coming Version” CPI line to your last graph?
The problem I have is that that the new version doesn’t go back to 1990, but only to 2008. And it’s set with an index value of Dec 2007 = 100. Which will make the explanation of my chart very complicated because it’s going to look odd.
The new version will be included in the CPI for April. So I’m going to see how they do that, how they merge those two data sets. And then I will switch to the new data set.
Roger that.
Is it just me, Wolf, or are you and everyone else surprised that BLS is making this move about the time interest rates will start rising & QE will have ended? It’s possible that this will coincide with when new car transaction prices will start to fall?
If so, how soon can we expect to see the Case-Schiller transaction model replace the OER survey?
Either way, this sounds like a good shorting auto & home manufacturers opportunities.
Jay,
This has been planned for years. They published the final version in March 2021. They asked for public comments in 2020, by which time they already had a preliminary version. So maybe they decided to go this route and make a deal with JD Power in 2018 or 2019.
At the time of the decision (2018 or 2019), the CPI NV was probably close to 0% or maybe even negative. They had no idea that they would officially start this new version during the worst inflation in 40 years, and they had no idea that the price of new vehicles would spike like this – something just unimaginable three years ago.
That said, interest rates were being hiked in 2018, so rising interest rates would not have been a surprise for them. They kind of go with the ebb and flow of things.
Question is, WHY only just NOW do they decide to get more honest?
To increase the “justification” for the politically easy but worse than worthless to actually fix the problem move to price controls just prior to an election with the really nasty effects of that delayed until after?
The Fed can’t raise rates enough to address the problem without bursting the everything bubble. So, what to do to fool the idiocracy just long enough for them to vote “correctly”?
The White House Council of Economic Advisers suggests that the best historical analogy for today’s inflation is the aftermath of the second world war:
Historical Parallels to Todays Inflationary Episode – 6 Jul 2021
“…the rapid post-war inflationary episode was caused by the elimination of price controls, supply shortages, and pent-up demand.”
“…in the post-Korean War years, when price controls were removed, inflation did not jump the way it did following World War II.”
“The period right after World War II potentially provides the most relevant case study, as the rapid post-war inflationary episode was caused by the elimination of price controls…”
my problem with these hedonics, outside of real feature improvements, is that if a cop can electronically shut me down (I’m cool with this), so can a hacker
I just purchased a Dodge 3500 for my business and it cost me 80k. was 70k a 6 months ago and 65k last year. Thats a bit more than even the woosh……
Try to remotely control my 1971 Ghia! Bwahahaha!
Using “hedonic quality adjustments” for vehicles may have some validity when beneficial technology is added, but making “quality adjustments” should not be a one-way street. Consider also that today’s cars cost a lot more to repair when things go wrong or when an accident causes damages not only to parts like bumpers but also the expensive sensors. I used to work on my cars, but open the engine bay on my Audi today and it has a cover to keep me out and needs a computer to diagnose any troubles. Try changing the oil on some new vehicles without a lift and dropping parts. And hope your new infotainment system doesn’t go south on you. All these costs should be calculated in the CPI along with “improvements”, but they aren’t.