If a group of researchers is correct, inflation could be far lower than the government isꦯ reportin🐠g. 

A new measure of inflation created last week by SMR Research Group, a New Jersey-based market research company, takes the government’s CPI data and makes a revision to how housing costs are calculated.

By their reckoning, the real inflation rate is much closer to the 2% inflation rate that officials at the Federal Reserve is targeting. That’s a healthy level that supports job creation and a smoothly running economy, versus the current official rate of 4% as measured by the CPI. 

SMR’s objection to the official inflation rate lies with the fact that the largest com🔯ponent of it—a quarter of its total value—is something called Owners Equivalent Rent ꦯ(OER). 

OER is supposed to account for housing costs for homeowners, but in reality, it’s a 澳洲幸运5官方开奖结果体彩网:number that no one actually pays. OER is currently running at 8% a year and in fact, accounts for the majority of overall core CPI that excludes food and energy.

The Bureau of Labor Statistics doesn’t use mortgage payments to estimate homeowners’ costs because it considers those to be an investment, not a consumption cost. Instead, it measures rental costs in an area, and then calculates OER, the amount of rent that homeowners are giving up by living in their houses instead of renting them out. 

If this doesn’t make sense to you, you’re not alone: Stuart Feldstein, co-founder of SMR, calls the BLS method “insane.”

“If you want to talk about consumer inflation, then the high price of housing only matters if you just bought a house,” he said. “And most people didn't just buy a house.”

SMR estimates housing costs using a much simpler method: looking at data on mortgage payments and property taxes. The company’s dataset includes information on 53 million owner-occupied homes. This method captures real changes in the checks homeowners are writing, and reflects the fact that for people living in houses with fixed rate mortgages, there is little to no housing inflation at all, while people who just bought a house are taking on much higher costs.

“What really happens with homeowners and inflation based on mortgages and property taxes is extreme,” Feldstein said. “Either nothing happens at all, or something happens where the house was owned by someone else and you bought it and you bought it at a much higher price with a higher rate of interest. So you go from a small mortgage amount to a very large one at the same address.”

Calculated that way, there’s still a significant amount of housing inflation for homeowners—3.21% over the year, but far below the 8% official OER figure.