Why are assets such as housing not included in inflation?
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While I believe there are serious issues with how we calculate inflation, housing in the form of rent is included on the CPE (consumer price index).
The PCE (Personal Consumption Expenditures) does include both rent and purchased homes.
Housing is looked at as an investment sadly, and is therefore excluded from the CPE which aims to capture common costs imputed on the everyday person.
A short answer is if we’re looking at a Consumer Price Index, we’re interested in the price of things people *consume* and assets aren’t consumption.
It’s also kind of nonsensical to include assets in inflation. Imagine you buy gold as an asset. The price goes up 10%. But the value has also gone up 10%. So you might get less gold for your month, but buying £1,000 of gold still gets you an asset worth £1,000. It’s a little like a bag of rice going up in price by 10% but you’re also getting 10% more rice.
What about housing, though? This is complicated, since if you own a house you live in, that is both an important asset and a form of consumption. How do you separate out the two?
There’s a measure called CPI-H which attempts to do this by including an estimate of how much owner-occupiers would be paying in rent.
In the UK this is actually the Office for National Statistics’ headline measure. If you go to their website the big inflation number you see includes housing costs. But it’s not widely used, for reasons that aren’t entirely clear. Considering the really dated RPI is used in quite a few places there seems to be a reluctance to adopt new measures of inflation.
Just FYI: Housing is indirectly used in determining things like the CPI:
https://www.brookings.edu/articles/how-does-the-government-measure-inflation/
> If a housing unit isn’t rented but is owned by the resident, they use what is called the owners’ equivalent rent: the BLS finds what it would cost the owner to rent a similar place and uses that as the price for housing instead. Since rentals do not change frequently, the rent of each unit is sampled every six months, allowing the BLS to survey more houses overall.
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