CPI figures are due Thursday morning. CPI is a blunt tool at best.
We have written on a number of occasions as to why we are not fans of the Government-reported CPI data. To summarize why we dislike the CPI measure:
- CPI is not a comprehensive measure of price inflation. Much of the price inflation of 2020 and 2021 went into financial assets such as public equities (think Technology stocks), as well as alternative assets such as private equity, classic cars, art and crypto (the latter has lost more than $1 trillion since its peak).
- CPI categories are under-reported. For example, as of the last CPI report, the “Food” category was up 11.2%. Retail grocery prices as well as restaurant prices are up far more than 11%. We would estimate 40% and 50% retail grocery and restaurant price increases respectively over the past 12 months.
- CPI data is often backward-looking and/or not based on real-world data. Think of Owners’ Equivalent rent (a component of the “Shelter” category), which we have written about numerous times. That important, heavily-weighted CPI category is based on survey data and is reported with a lag. Why not use Zillow data instead? You know the old saying about data: garbage in, garbage out.
- Speaking of “Shelter”, that CPI category carries a 32.5% weighting today and used to carry a 38.1% weighting in 1986. Recasting the category under the 1986 weighting would move the Shelter figure significantly higher.
- CPI weightings move around and are too light in some important categories. For example, the CPI’s “Food” category only has a 13.6% weighting. That seems low. The same measure used to be 20.1% in 1986.