The Government Took Home Prices Out of Inflation in 1983

24 Oct 2026 · 1 min

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1:12

In this monologue, Alexander Lorenzo explains the significance of the Consumer Price Index (CPI) for the U.S. economy and Federal Reserve policy, focusing on how the Bureau of Labor Statistics (BLS) altered the housing component of the CPI in the early 1980s. He describes the original CPI methodology, which included mortgage interest, property taxes, insurance, and repairs, and contrasts it with the later “rent‑equivalent” approach that treats housing as a rental market. Lorenzo argues that this change effectively decouples home‑price spikes from measured inflation, allowing the CPI to stay within the Fed’s 2% target even when housing costs rise sharply. He critiques the CPI as a reactive metric that is repeatedly patched to fit current conditions, likening modern economic measurement to a fragile house of cards built on outdated formulas. The overall take‑away is that CPI figures are more a product of methodological choices than an immutable reflection of consumer price changes, and that the system’s ad‑hoc adjustments undermine its reliability.

Chapters

It's one of the most important numbers in the economy, the Consumer Price Index, and it launches every month. And that number pretty much determines a lot of what the Federal Reserve does. So the Federal Reserve is looking at that constantly to make sure that inflation's around 2% specifically. Okay. The older CPI included some purchases, mortgage interest, property taxes, insurance, and repairs. BLS changed this part of the index to ask What would a similar home cost to rent? So to put it simple is that, you know, there's different markets, right? So like, for example, if the cost of homes like shoots up for whatever reason, then the inflation is not going to shoot up. Does that make sense? It's really that simple. So like they had to change the formula. I'm sure what's going to happen in the future is the CPI will be changed. It's a metric they make to kind of like accommodate the current scenario. But then if something else happens, and breaks the metric, they change the metric. So that's how I always tell people, it's like modern economics is just like some guy made a formula and then the formula breaks and then they fix it. And then like, it's just like a house of cards basically. So a lot of this stuff, like, we need to understand the spiritual aspect, but a lot of it is just, it's just not a good system and they just like trying to fix it from guys that made it 40 years ago.