What Is Really Going On With Rent and Healthcare Inflation?

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, last month's inflation number, I mean, I guess it was just a disappointment, right? Because two months ago, it was this cool number, both on headline, core, like, oh, maybe the turn is finally here.

And then last month, it was like, nope, straight back up again.

Tracy Alloway (0:31)

How many words did you write about why people should be focused on month on month versus year on year?

Joe Weisenthal (0:35)

No, I still think that from an investor standpoint, or just someone trying to understand the economy clearly, like the sequential numbers are more telling. I wasn't trying to, Tracy, I resent the insinuation that you think I would write something.

Tracy Alloway (0:49)

I would never insinuate anything. Okay, but you're right. Okay, so people were expecting inflation to start to slow down a little bit. And that's why there was lots of talk about why you should look at the sequential month on month data versus the year on year. But what we saw instead was basically any way you slice the data, it looked disappointing.

And were you going to defend month on month again?

Joe Weisenthal (1:11)

No, no, of course not. I was just going to say, ironically, the only measure that looked good was the completely unsliced headline data because that was so far dragged on by the average. But the moment you did even the slightest bit of prodding under headline, it was like, oh my God, raging hot.

Tracy Alloway (1:27)

Well, I think the big takeaway from that number, other than it being disappointing, was the fact that we really see some of these price increases starting to spread from things like food and energy and more towards services. And services, as everyone is now finding out, is a big, big part of the core index.

Joe Weisenthal (1:44)

And I guess everyone called this too, like I think last year, they're like, oh, we're going to have this big shift to services. And yeah, sure, goods prices will come down and bullwhip effects and inventories and all that.

But now it's here. And it's like, oh man, this could be here for a while. And it's not slowing down yet.

Tracy Alloway (1:59)

Yeah. And I think the big question is, how long does it take to feed into the index and how long does it take to kind of go away?

And there are different data points, and there's been some discussion of this as well. There's private market data points, for instance, that show rents are starting to slow. So when does that feed into CPI?

Omair Sharif (2:16)

Right.

Joe Weisenthal (2:16)

So various online companies, like Zillow or something, they'll have a rent index. And this sort of gets to the question, because first of all, the thing that one of the big upward drivers of inflation in the last report was rent. Most people feel rent. It's like a very salient category.

There are some categories that maybe are more hidden. Rent is not one of them.

Shelter is not one of them. But then, yes, there is this thing. So it's like, OK, we have these private measures that seem to be rolling over a little bit, but the numbers in the CPI keep going up. So is this a case where the CPI has just lagged? Like, is it bad data or is it people are misunderstanding the relationship between the official government numbers and what some of these private surveys are saying?

Tracy Alloway (2:54)

Well, today we are going to be digging deep into those numbers, right?

Joe Weisenthal (2:59)

Absolutely. So let's get right to it. We have the ultimate guest for digging into inflation numbers, and he knows more about what these numbers actually mean and how they're derived. I think you've talked to him several times in your reporting on the minutiae. When you did mayonnaise reporting, it's like, OK, where is this and which index and how much of this is like soy oils versus condiments?

Tracy Alloway (3:22)

Yeah.

Joe Weisenthal (3:23)

He knows everything.

Tracy Alloway (3:24)

The way we measure inflation never ceases to amaze me. And there's just so much to say about the actual construction of the indices and things that people don't normally talk about. But we probably should.

Joe Weisenthal (3:34)

Let's talk about them. We are going to be bringing back to the show a past guest. Omair Sharif is the president and founder of Inflation Insights. And he will answer all our questions about why some numbers are going up, maybe some hopefully that go down. So, Omair, thank you so much for coming back on the show.