Some suggest that owners' equivalent rent should simply be dropped from the inflation index.
A third of that, however, was "owners' equivalent rent," an artificial construct imported into the Consumer Price Index in 1980.
Instead, the Bureau of Labor Statistics makes a calculation of "owners' equivalent rent," which is based on the trend of costs to rent a home, not to buy one.
In turn, owners' equivalent rent has risen too, even though homeowners have seen no change in the actual costs of owning their house.
Because owners' equivalent rent is estimated net of utility prices, recent falls in gas and electricity bills have paradoxically made matters worse.Statistical quirks, in short, are distorting the picture.
The statistical nuances of owners' equivalent rent suggest that core inflation may rise further and will remain above Mr Bernanke's boundaries for the rest of the year, even as the economy slows.
From October 2010 through January, home prices as measured by an index kept by Federal Housing Finance Agency fell at an annual rate of 12.4 percent, while the government's calculation of owners' equivalent rent shows it rising at an annual rate of 1.5 percent.
Now, replace the 2.5 percent rise in owners' equivalent rent with 2004's 16.2 percent rise in house prices nationwide, and the actual living cost inflation experienced by Americans comes to a theoretical 7.4 percent, suggesting that deflation was the last thing the Fed should have been worrying about.
Over the past three months this index has risen at an annual rate of 3.8%, the fastest in more than a decade.But much of that jump is thanks to a sharp rise in the cost of housing (which makes up almost 40% of core CPI), particularly the category of "owners' equivalent rent" which estimates the cost of living in a house by looking at rents charged on similar properties.
That means even when using a tortured metric like the CPI (25% of which is owners' equivalent rent), real interest rates are still negative.
