Wikinvest Wire

BLS: Homeownership costs continue to rise

Wednesday, June 17, 2009

The Labor Department reported consumer prices rose a seasonally adjusted 0.1 percent in May, largely as a result of rising energy prices, but, from year ago levels, the cost of living decreased a full 1.3 percent (unadjusted), the sharpest decline in prices since 1950.
IMAGE The U.S. recession, now in its 18th month, and the associated soaring unemployment rate are credited with keeping prices from rising with the notable exception of energy.

While manufacturers and retailers are reluctant to raise prices for most consumer goods, higher crude oil prices are routinely passed on to consumers, the cost of gasoline rising 2.7 in May, a full 9.6 percent when not adjusted for seasonal variations.

After reaching a low in December, the price at the pump as measured by the Labor Department is now up 10.7 percent in 2009 through May, or a much more realistic "not-seasonally adjusted" 33.7 percent.

This unadjusted year-to-date increase is consistent with data from the Energy Department, however, gasoline prices have continued to rise about another 20 percent over the last month, setting the stage for a much more interesting inflation report next month.
IMAGE Food prices fell for the fourth straight month but are still up 2.7 percent on a year-over-year basis and owners' equivalent rent (OER), intended to represent the cost of homeownership, rose 0.1 percent in May and is now up 2.1 percent from a year ago.

The gains in OER are truly stupefying and an ongoing demonstration of what is probably the single most harmful component of the inflation data since the under-reported rise in real housing costs in the consumer price index played a major role in allowing the housing bubble to grow so large and burst so spectacularly.

Amazingly, while actual home prices continue to tumble at double-digit rates (a year-over-year decline of more than 20 percent per the most recent data from the S&P Case-Shiller Home Price Index), according to the government's inflation statistics, the cost of homeownership continues to rise.



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