inflation and durable goods
On a related note, last night's Nightly Business Report included a complaint by Alan (sp?) Sloan of the Wall Street Journal that the cost of housing included in the CPI by way of imputed rent, with any difference between the cost of a house and the cost of housing treated as an investment. I'm absolutely with Washington on this one. The cost of buying a house has been rising a lot faster in the past several years than have rents; this is because interest rates have been down. It might then be appropriate to factor this in by including not the sticker price of a house, but the mortgage payment necessary to buy that house; this (combined with the other ancillary ongoing expenses of keeping a home that get passed on by landlords to renters) is exactly what the government calculation ends up doing.

As interest rates drift higher — though I'm starting to side with the school of thought that they will drift with a pace that, to conventional wisdom, seems surprisingly measured — the ratio between housing prices and rents will start going the other way. So, of course, will the ratio between the costs of buying a home and those of financing one. That will be the time to acknowledge a decrease in the ability of a dollar to pay for current expenses.

(It's clear that this is a related note, right? All durable goods are, to the extent durable, a bit of an "investment", though I'd hold that term at arms length if the good can't be easily rented out or resold in a somewhat liquid market. "Savings" seems semantically closer, but in the identity I recited last night, this would count as investment. If I buy a car that I intend to resell in a few years, I might reasonably view half of it as an investment, but most goods that aren't houses won't be durable enough for the distinction between costs of purchase and current costs of ownership to be as big as it is for housing.)
- posted by dWj @ 12:06 AM