We feel that as inflation because it is inflation. What you showed is that inflation is not necessarily a loss in income.
I think you missed the point. Perhaps I didn't explain it well.
When inflation is matched by increases in wages, nominal prices go up, but purchasing power remains the same. The problem is that people confuse the
nominal prices with
purchasing power. The illusion is that you
think your purchasing power has declined, but it hasn't.
And of course, individual experience is mere anecdote. It's not a valid measure of anything except that person's feelings.
I'd also add that Americans haven't experienced high inflation since the 70s.
Thus, if someone under the age of 40 tells me that inflation is out of control, while CPI figures have been at record lows for 10 years in a row? I'm going with CPI.
For Millennials, that's largely no longer attainable.
Huh?
Millennials do have certain disadvantages compared to previous generations, mostly because a) they mostly started entering the workforce during the worst economic downturn since the 1930s (and that will affect lifetime earnings), and b) they are facing a more competitive work environment, which requires more education, which incurs more debt (but also increases lifetime earnings).
However, it's not like everyone aged 22 to 37 is homeless and have no prospects for economic survival. 85% have their own residence; they tend to live in areas where they don't need cars and/or can rely on car sharing or other car services; more young people have college degrees than ever before. I.e. let's not go overboard when reviewing the economic status of younger people.
Are you saying that people are not accurately capturing how much rents have risen recently?
I'm saying that people do not perceive their actual costs of living accurately.
Housing costs are routine, but changes are infrequent (once a year, or less). People are more likely to notice or feel any negative price fluctuations on purchases that they make several times a week, even if those purchases make up a relatively small part of their total spending.
Household wages have been flat despite many households adding a second income earner. Given that CPI is not capturing inflation well, especially over long periods of time, people feel poorer, and they are poorer. A simple ratio of home prices to incomes reveals that.
First, I see no valid argument that "CPI doesn't accurately reflect inflation." For example, you note that housing is about 40% of current CPI measures -- and that figure matches a lot of current research.
Second, and again: Housing prices match closely to the
size of the homes, meaning housing is more expensive because
we are living in larger homes.
Third, the number of workers in households hasn't actually changed all that much since the 70s. LFPR went from 60% in 1970, peaked at 67% in 2001, and has hovered around 62% since around 2014. We should note this means that, for most part, median household income did not fall at the exact same rate as LFPR. So more households with couples now have dual earners, but it's not like twice as many people are working in 2018 than in 1978.
I'd argue that we're moving the average toward larger homes because only the richer among us can afford to buy homes. That said, it's really not that large of an increase in size, and it certainly doesn't explain all of the significant rise in home prices vs. incomes.
Sorry, that doesn't work out either.
Homes have nearly
doubled in size since 1970. It's gone from 551 sq ft/person to 1058 sq ft/person today. The 2nd chart points out how cost of housing is correlated to the average square foot per person.
Home ownership rates also haven't changed all that dramatically. For decades, it was in the 60-63% range; in the 90s, it started to run up, and peaked with the real estate bubble in 2004 at 70%. Since then, it's fallen and stabilized around 63%.
So home prices have risen, but it doesn't matter because homeowners are better off and who cares about renters. Solid.
Let's try this again.
Case-Shiller doesn't actually describe
housing costs. It's an index of home sales. It doesn't tell us anything at all about rents. It doesn't directly measure interest rates, or property taxes, or the size of the property, or inventory.
You haven't shown that Owners' Equivalent Rent of Residence is wrong. All you've shown is that it doesn't correlate to Case-Shiller, which is not surprising, because C-S
doesn't tell us the cost of housing, nor was it ever intended to do so.