WEBVTT - What Is Really Going On With Rent and Healthcare Inflation? 0:00:10.039 --> 0:00:13.840 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.880 --> 0:00:18.400 I'm Joe Wisenthal and I'm Tracy Halloway. Tracy last month's 0:00:18.520 --> 0:00:21.360 inflation number, and I guess it was just a disappointment, right, 0:00:21.360 --> 0:00:24.360 because two months ago it was this cool number both 0:00:24.400 --> 0:00:27.760 on headline core, like maybe the turn is finally here, 0:00:28.360 --> 0:00:30.720 and then last month it was like, no, straight back 0:00:30.760 --> 0:00:33.000 up again. How many words did you write about why 0:00:33.040 --> 0:00:35.199 people should be focused on month on month versus year 0:00:35.240 --> 0:00:39.080 on here? I still think that from an investor or 0:00:39.120 --> 0:00:41.440 standpoint or just someone trying to understand you account clearly 0:00:41.479 --> 0:00:45.480 like the sequential numbers are more telling. I wasn't, Tracy. 0:00:45.640 --> 0:00:48.840 I resent the insinuation that you think I would write, 0:00:48.840 --> 0:00:52.360 so I would never insinuate anything, Okay, but you're right, Okay, 0:00:52.520 --> 0:00:56.440 So people were expecting inflation to start to slow down 0:00:56.600 --> 0:00:58.280 a little bit, and that's why there was lots of 0:00:58.320 --> 0:01:00.200 talk about why you should look at the sequence whole 0:01:00.280 --> 0:01:03.360 month on month data versus the year on year. But 0:01:03.600 --> 0:01:06.280 what we saw instead was basically, any way you slice 0:01:06.319 --> 0:01:10.480 the data, it looked disappointing. And where you going to 0:01:10.560 --> 0:01:12.800 defend month on month again? No, no, of course, I 0:01:12.920 --> 0:01:16.720 was just gonna say, ironically, the one the only measure 0:01:16.800 --> 0:01:20.680 that looked good was the completely unsliced headline data because 0:01:20.720 --> 0:01:23.640 that was so far dragged out, but the moment you 0:01:23.680 --> 0:01:26.120 did even the slightest bit of product under headline was like, 0:01:26.160 --> 0:01:29.039 oh my god, raging hut. All right. Well, the I 0:01:29.080 --> 0:01:31.760 think the big takeaway from that number, other than it 0:01:31.840 --> 0:01:34.200 being disappointing, was the fact that we really see some 0:01:34.240 --> 0:01:37.240 of these price increases starting to spread from things like 0:01:37.280 --> 0:01:41.240 food and energy and more towards services. And services, as 0:01:41.319 --> 0:01:43.880 everyone is now finding out, is a big, big part 0:01:43.920 --> 0:01:46.120 of the core index. And I guess everyone called this 0:01:46.200 --> 0:01:47.760 to like, I think last year they're like, oh, we're 0:01:47.760 --> 0:01:50.240 gonna have this big shift to services and yeah, sure, 0:01:50.280 --> 0:01:53.200 good prices will come down and bull whip effects and 0:01:53.320 --> 0:01:56.880 inventories and all that. But now it's here and it's like, 0:01:56.880 --> 0:01:58.280 oh man, this could be here for a while and 0:01:58.280 --> 0:02:00.200 it's not slowing down yet. Yeah, And I think the 0:02:00.200 --> 0:02:02.240 big question is how long does it take to feed 0:02:02.240 --> 0:02:04.000 into the index and how long does it take to 0:02:04.200 --> 0:02:07.600 kind of go away? And there are different data points, 0:02:07.680 --> 0:02:09.520 and there's been some discussion of this as well. There's 0:02:09.560 --> 0:02:12.880 private market data points, for instance, that show rents are 0:02:12.960 --> 0:02:16.639 starting to slow, so when does that feed into CPI? Right, So, 0:02:16.800 --> 0:02:19.760 various online companies like a Zillo or something, they'll have 0:02:19.760 --> 0:02:21.680 a rent index. And this sort of gets to the 0:02:21.760 --> 0:02:24.080 question because, first of all, the thing that one of 0:02:24.080 --> 0:02:26.919 the big upward drivers of inflation and the last report 0:02:27.200 --> 0:02:29.440 was rent. Everyone most people feel rent. It's like a 0:02:29.520 --> 0:02:32.560 very salient category. There are some categories that maybe are 0:02:32.560 --> 0:02:35.520 more hidden. Rent is not one of them. Shelter is 0:02:35.520 --> 0:02:37.799 not one of them. But then yes, there is this thing. 0:02:37.840 --> 0:02:40.120 So it's like, Okay, we have these private measures that 0:02:40.280 --> 0:02:42.320 seem to be rolling over a little bit, but the 0:02:42.360 --> 0:02:44.600 numbers in the CPI keep going up. So is this 0:02:44.639 --> 0:02:47.079 the case where the CPI is just lagged like bad 0:02:47.200 --> 0:02:50.959 data or is it people are misunderstanding the relationship between 0:02:50.960 --> 0:02:53.720 the official government numbers and what some of these private 0:02:53.720 --> 0:02:57.680 surveys are ship Today we're going to be digging deep 0:02:57.800 --> 0:03:01.360 into those numbers, right, absolutely, So let's get right to it. 0:03:01.560 --> 0:03:05.880 We have the ultimate guest for digging into inflation numbers, 0:03:05.919 --> 0:03:08.079 and he knows more about like what these numbers actually 0:03:08.120 --> 0:03:10.639 mean and how they're derived. I think you've talked to 0:03:10.680 --> 0:03:13.640 him several times, and you're reporting on like the minutia 0:03:13.960 --> 0:03:17.639 like you when you did like mayonnaise reporting, It's like, Okay, 0:03:17.639 --> 0:03:19.799 where is this in which index? And how much of 0:03:19.919 --> 0:03:24.120 this is like soy oils versus condiments? Like he knows everything. 0:03:24.320 --> 0:03:27.400 The way we measure inflation never ceases to amaze me. 0:03:27.480 --> 0:03:29.400 And there's just so much to say about the actual 0:03:29.440 --> 0:03:32.400 construction of the indicries and things that people don't normally 0:03:32.440 --> 0:03:35.240 talk about but we probably should. Let's talk about them. 0:03:35.240 --> 0:03:37.720 We're gonna be bringing back to the show a past guest. 0:03:37.760 --> 0:03:41.880 O'mar Sharif is the president and founder of Inflation Insights, 0:03:41.960 --> 0:03:44.080 and he will answer all our questions about why some 0:03:44.400 --> 0:03:46.960 numbers are going up maybe some hopefully that go down. 0:03:46.960 --> 0:03:48.720 So Ama, thank you so much for coming back on 0:03:48.760 --> 0:03:51.720 the show. What's going on? When is the numbers going 0:03:51.800 --> 0:03:54.480 to start turning down? This is I thought inflation was transitor. 0:03:54.680 --> 0:03:56.360 I made a whole like you know, I was like 0:03:56.480 --> 0:03:58.880 I was like on team Transitory. Now I look ridiculous. 0:03:59.720 --> 0:04:03.520 Um well, I think probably you know the turn of 0:04:03.560 --> 0:04:06.360 this year is because what I'm thinking is we're gonna 0:04:06.400 --> 0:04:09.600 start to see the monthly rate, especially the core, start 0:04:09.680 --> 0:04:11.080 to really kind of come off. I mean, we've been 0:04:11.120 --> 0:04:13.280 kind of stuck around point flat point six every month 0:04:13.280 --> 0:04:15.720 on the core pretty much for close to a year. Um, 0:04:15.960 --> 0:04:17.919 we haven't got a long relief, but I think that 0:04:17.960 --> 0:04:20.520 relief is coming from a few different areas, hopefully in 0:04:20.520 --> 0:04:22.919 the next couple of months. Okay, I'm gonna clip. It 0:04:22.920 --> 0:04:24.760 doesn't matter how long it takes. I'm going to claim 0:04:24.839 --> 0:04:29.560 victory in five years of inflation comes down. Great. Um, okay, well, 0:04:29.600 --> 0:04:31.680 maybe we can talk about one of the things that 0:04:31.720 --> 0:04:35.479 people expected to start coming down and it hasn't, at 0:04:35.560 --> 0:04:38.760 least according to um last month's data, and that's used cars. 0:04:38.960 --> 0:04:41.160 Car prices, and this was one of the big drivers 0:04:41.160 --> 0:04:43.760 of inflation actually, you know, going up over the past 0:04:43.839 --> 0:04:46.600 year or so. Why haven't prices come down? This is 0:04:46.640 --> 0:04:49.560 what everyone was expecting to happen. Yeah, so use car 0:04:49.640 --> 0:04:52.240 prices like a lot of things. Uh, you know, when 0:04:52.279 --> 0:04:55.120 prices cool sale prices are going up, they are just 0:04:55.440 --> 0:04:57.960 very quickly on the way up. When they are coming down, 0:04:58.040 --> 0:05:00.159 they take a little hell to come down. And so 0:05:00.600 --> 0:05:03.080 what we've seen, honestly all year long is that wholesale 0:05:03.120 --> 0:05:05.200 prices are down very, very sharply. You want to look 0:05:05.240 --> 0:05:08.560 at Manheim Black Book data and JD Power, which is 0:05:08.680 --> 0:05:11.760 sourced data. Actually for the BLS um all of these 0:05:11.760 --> 0:05:13.679 things that are down, you have ten and eleven twelve 0:05:13.760 --> 0:05:16.880 percent depending on the indext over the last six seven months. 0:05:17.480 --> 0:05:19.839 Retail litt on the other hand, has been kind of 0:05:20.040 --> 0:05:23.000 roughly flat because a lot of sellers are not really 0:05:23.000 --> 0:05:26.080 pulling down the crisis. But we're starting to see that change, 0:05:26.080 --> 0:05:27.520 and really over the last six or seven weeks, I 0:05:27.520 --> 0:05:30.560 would say that that is starting to adjust. So model years, 0:05:30.600 --> 0:05:32.280 you know, two year old models, three row models for 0:05:32.440 --> 0:05:34.800 those prices and retail prices are coming down. You can 0:05:34.800 --> 0:05:37.200 see this in the BlackBook Retail Index, for example, prices 0:05:37.279 --> 0:05:39.280 were down about two and a half percent in August. 0:05:39.600 --> 0:05:42.240 So all we're really waiting to see is that data 0:05:42.600 --> 0:05:45.559 translate into the CPI and the next we use cars 0:05:45.560 --> 0:05:47.800 and I think, you know, September it is a good 0:05:47.800 --> 0:05:49.960 point where that might enter, but I think October is 0:05:49.960 --> 0:05:53.080 probably the month you really want to focus on. September. 0:05:53.120 --> 0:05:55.680 There's a lot of adjustments that are happening in September, 0:05:56.120 --> 0:05:58.800 but September October, I think is when you really are 0:05:58.800 --> 0:06:01.360 going to start to see the retail stuff on these 0:06:01.400 --> 0:06:03.400 cars in next start to come come off in the 0:06:03.400 --> 0:06:05.159 CPI and that that's going to be a big boon 0:06:05.240 --> 0:06:07.920 in terms of you know, getting that core weight quarter 0:06:08.000 --> 0:06:10.799 and next lower. How do you actually go about, because 0:06:10.800 --> 0:06:12.479 this is your day to day business, how do you 0:06:12.520 --> 0:06:16.120 go about trying to measure that lag between you know, 0:06:16.160 --> 0:06:19.159 what we see in the market and what we actually 0:06:19.200 --> 0:06:21.720 see showing up in the CPI data. First of all, 0:06:21.760 --> 0:06:24.400 you're looking at these market industries, you know, whether it's 0:06:24.440 --> 0:06:27.800 span Him or Black Book, and you're essentially mapping them 0:06:27.920 --> 0:06:31.279 is at the wholesale level against the retail price index 0:06:31.400 --> 0:06:35.520 for the CPI UM. Now, obviously wholesale, you know, typically 0:06:35.720 --> 0:06:39.679 defined as the strongest correlations, will be with wholesale changes 0:06:40.320 --> 0:06:43.320 feeding roughly about two months later into the CPI. Now 0:06:43.360 --> 0:06:45.960 what's really interesting is like before the pandemic, this was 0:06:46.240 --> 0:06:49.040 pretty much a constant roughly a two month lag, so 0:06:49.080 --> 0:06:51.840 eight weeks later, whatever happened wholesale typically showed up in 0:06:51.880 --> 0:06:54.960 the CPI. What the pandemic did was completely throw these 0:06:55.040 --> 0:06:57.839 lags off to the point where you know, prices started 0:06:57.880 --> 0:07:01.279 moving at the wholesale level, obviously they're going up, and 0:07:01.320 --> 0:07:04.880 that immediately fed into retail like there was no lag whatsoever, 0:07:05.360 --> 0:07:07.960 and if you're one of five six percent of wholesale 0:07:08.000 --> 0:07:10.240 one month, guess what the CPI was going up five 0:07:10.520 --> 0:07:12.960 pc and use cars the next one. Now, what we're 0:07:13.000 --> 0:07:15.120 seeing now, I think is a little bit of a 0:07:15.120 --> 0:07:18.160 reversion to that, um, you know, the old lag of 0:07:18.160 --> 0:07:20.200 about to shoot three months. And that's why I think. 0:07:20.800 --> 0:07:23.200 You know, we've seen wholesale come off the last several months, 0:07:23.200 --> 0:07:24.640 and people are saying, we wait, it's like on the 0:07:24.680 --> 0:07:28.240 CPI use cars index is you know, kind of unchanged 0:07:28.320 --> 0:07:30.840 or maybe up a little bit. So I think it's 0:07:30.840 --> 0:07:32.560 it's just the issues that the lags are are kind 0:07:32.560 --> 0:07:34.240 of back to what they were. This is sort of 0:07:34.240 --> 0:07:36.240 like gasolute. You know, when gasing prices go up and 0:07:36.280 --> 0:07:38.680 wholesale level you feel it right away, and you see 0:07:38.680 --> 0:07:40.640 it right away at the pub when they go down, 0:07:40.760 --> 0:07:44.560 it's a very gradual decline, right you're kind of pocketing 0:07:44.560 --> 0:07:47.120 that extra margin. And I think dealers are doing the 0:07:47.160 --> 0:07:49.680 same thing and happened for a while. But I think 0:07:49.720 --> 0:07:51.560 that jig is up and should be over the next 0:07:51.600 --> 0:07:54.560 couple of months. So let's talk a little bit more 0:07:54.600 --> 0:07:56.520 about this. And you know, I'm starting to like feel 0:07:56.520 --> 0:07:59.400 a little bit better about always big wrong on everything 0:07:59.400 --> 0:08:01.800 because I just got these measures, right, I look at trucking, 0:08:02.000 --> 0:08:05.080 look at cars, I look at the triple A gasoline. 0:08:05.120 --> 0:08:06.760 It's like, look, all these lines are going down. They 0:08:06.760 --> 0:08:09.400 should show up. Can you talk a little bit about 0:08:09.520 --> 0:08:12.960 why these legs exists, What is the difference between some 0:08:13.040 --> 0:08:16.200 of these measured prices and the government prices and what 0:08:16.240 --> 0:08:19.360 do you have any theories or sort of explanations why 0:08:19.640 --> 0:08:23.840 past lags got disrupted? And so that the gap between 0:08:24.000 --> 0:08:26.920 private survey measures of prices versus what showed up in 0:08:27.000 --> 0:08:30.320 government data did not have the same temporal relationship as 0:08:30.360 --> 0:08:34.520 it used to prepand the temporal is a good word. Yes, 0:08:34.559 --> 0:08:37.040 I would I would talk about this with using you 0:08:37.080 --> 0:08:39.200 know it'll go back to use cars. Yeah. One is 0:08:39.600 --> 0:08:41.920 you know that in terms of the pandemic when it 0:08:42.000 --> 0:08:45.880 hit um, what you had was basically a complete disruption 0:08:46.040 --> 0:08:48.560 in the use cars marketing. So it wasn't just that 0:08:48.600 --> 0:08:51.160 people demanded use cars because I say they were moving 0:08:51.200 --> 0:08:54.120 in suburbs or whatever. The biggest ship was You've had 0:08:54.280 --> 0:08:57.800 a natural seller in the used cars market. Car companies 0:08:58.160 --> 0:09:00.920 who became a net buyer used to vehicles and we 0:09:01.000 --> 0:09:04.040 really haven't seen that before. And what they did was 0:09:04.080 --> 0:09:06.559 they scooped up all the zero to three year models 0:09:06.640 --> 0:09:09.920 that they could to sort of replenish their stock. Um, 0:09:09.960 --> 0:09:11.800 you know, things came back a lot stronger obviously twenty 0:09:11.840 --> 0:09:14.640 one that people thought. So take a company like Davis. 0:09:14.960 --> 0:09:17.319 They had about four hundred fifty thousand vehicles in their 0:09:17.320 --> 0:09:20.199 fleet in two thousand. That got down to about two 0:09:20.400 --> 0:09:24.000 d ninety thousand by the summer one, right when demand 0:09:24.040 --> 0:09:27.160 was booted, So they couldn't replenish them for manufacturers. They 0:09:27.240 --> 0:09:29.920 ended up going to the use cars market. So what 0:09:29.960 --> 0:09:32.480 you found was pricing increases in the zero three year bucket, 0:09:32.480 --> 0:09:35.400 which is all build buy those price increases skyrocket and 0:09:35.400 --> 0:09:37.480 if you're a dealer trying to buy a car, you 0:09:37.520 --> 0:09:39.600 can't find these vehicles and you need to go out 0:09:39.640 --> 0:09:42.000 by four or five six yelds. So all across that age, 0:09:42.040 --> 0:09:43.880 current prices spiked and it wasn't you know. I think 0:09:43.880 --> 0:09:46.559 the issue is just the magnitude was so large that 0:09:46.800 --> 0:09:50.240 you could really wait to price them out a retail right, 0:09:50.320 --> 0:09:52.920 So you're paying way way more than you were used 0:09:52.960 --> 0:09:55.840 to pay, and you had to pass that on a quickly. Uh. 0:09:55.920 --> 0:09:58.679 And so I think we saw those lads disrupted for 0:09:58.840 --> 0:10:02.240 that particular decide. Now on the way down, wholesales is 0:10:02.240 --> 0:10:04.800 getting a lot cheaper, you can still sell it for 0:10:04.840 --> 0:10:07.440 a bit more on the retail side. So again, just 0:10:07.480 --> 0:10:09.600 like athlete, you kind of pocket the margins as long 0:10:09.640 --> 0:10:11.960 as you can on the way down. And I think 0:10:11.960 --> 0:10:14.480 that's what you're seeing. The other item I would actually 0:10:14.520 --> 0:10:18.560 mention where honestly I am, I'm pretty stumbdusted. What's going 0:10:18.600 --> 0:10:22.400 on is really furniture prices. Um. You know, we have 0:10:22.520 --> 0:10:26.120 seen you talk about, you know, trucking rates going down, um, 0:10:26.360 --> 0:10:30.120 import prices of furniture going down. Inventories are jumped, while 0:10:30.160 --> 0:10:32.840 the big box retailers are telling you, you know, Walmart, Haargey, 0:10:32.840 --> 0:10:35.560 we've got too much of the stuff that we're discounting heavily, 0:10:35.920 --> 0:10:38.000 and yet the CPI is going up about one percent 0:10:38.360 --> 0:10:41.640 you know, every single month. Um. And there, you know, 0:10:41.679 --> 0:10:43.679 typically you would start to see the stuff coming through 0:10:43.720 --> 0:10:47.320 pretty quickly. I've honestly been winning since March or April 0:10:47.400 --> 0:10:50.480 for furniture to really slide, and it just continues to 0:10:50.480 --> 0:10:54.160 sort of defy, um, defy expectations. So there, I don't 0:10:54.200 --> 0:10:57.160 have as good as an answer in terms of what's happening, 0:10:57.200 --> 0:11:00.040 but we know all the signs are planning to the 0:11:00.040 --> 0:11:03.040 fact that they should be dropping, and the industry will 0:11:03.040 --> 0:11:05.600 tell you that. I mean, you read any furniture industry 0:11:05.640 --> 0:11:08.280 trade publication like I started doing when I was wrong 0:11:08.320 --> 0:11:11.120 on furniture for a while, Um, you know, furniture to 0:11:11.160 --> 0:11:13.640 a magazine will tell you, hey, they're preparing for recession. 0:11:14.040 --> 0:11:17.520 They've got too much stuff, they're discounting, orders are declining, 0:11:18.080 --> 0:11:19.959 and yet the CPI is that showing it. But I 0:11:20.000 --> 0:11:22.280 will say one other thing to think about is some 0:11:22.320 --> 0:11:25.559 of these samples in the CPI are not that large furniture. 0:11:25.600 --> 0:11:28.160 If you're talking about bedroom furniture, they may only have 0:11:28.280 --> 0:11:32.040 a couple of hundred quotes in the entire sample versus 0:11:32.440 --> 0:11:35.920 you know, thousands for something like rent um or you 0:11:35.960 --> 0:11:39.319 know thousand for airfare. So the smaller sample, the larger, 0:11:39.880 --> 0:11:42.400 you know, the chance that you'll have some some errors, 0:11:42.440 --> 0:11:45.360 you might miss some of the price changes, you know, 0:11:45.400 --> 0:11:48.080 particular much so that can also impact the lads that 0:11:48.120 --> 0:11:51.319 occur in the CPI. So, I mean it is true 0:11:51.400 --> 0:11:55.600 on the whole, the goods inflation has been going down. 0:11:55.600 --> 0:11:58.880 So I think it fell from like ten points seven 0:11:59.600 --> 0:12:03.400 you know last year to seven point one last August. 0:12:04.120 --> 0:12:07.400 And meanwhile, services, as we mentioned, is starting to pick 0:12:07.520 --> 0:12:09.880 up and services correct me if I'm wrong, but I 0:12:09.880 --> 0:12:12.600 think it's something like triple the weight in the core 0:12:12.640 --> 0:12:16.040 indux something like that. Can you walk us through, like 0:12:16.200 --> 0:12:19.640 a why do services get that much weighting and be 0:12:19.960 --> 0:12:22.800 how significant is it for the core index that it's 0:12:22.840 --> 0:12:25.160 now going up? Yes, so, I mean the bulk of 0:12:25.200 --> 0:12:28.640 that weighting is is Shelter. It's it's rent and its 0:12:28.679 --> 0:12:31.439 owner's equivalent rent um. You know, in the core CPI, 0:12:31.760 --> 0:12:33.920 where do you present the entire core is just rent? 0:12:33.960 --> 0:12:37.920 You know, we are combined and so within services, you know, 0:12:38.000 --> 0:12:40.840 the bulk of the weight is coming from from Shelter. 0:12:41.000 --> 0:12:45.480 So that's really what's driving UM that overweighting, if you will, 0:12:45.600 --> 0:12:48.640 to services relative to two goods. The fact that it 0:12:48.840 --> 0:12:52.440 is going up so dramatically, you know, that's obviously been 0:12:52.520 --> 0:12:55.640 an issue for the core UM. I would really say 0:12:55.720 --> 0:13:00.640 probably since since early spring when Shelter really started to accelerate. Now, 0:13:01.440 --> 0:13:03.640 you know, one thing I want to mention UM is 0:13:03.679 --> 0:13:07.160 that we I think the Shelter story, honestly is something 0:13:07.160 --> 0:13:11.000 that most people knew was gonna happen coming into this year, right, 0:13:11.040 --> 0:13:13.720 you mentioned some of these private market in the seas 0:13:13.760 --> 0:13:16.319 like apartment lists and Zillo and so on. They were 0:13:16.360 --> 0:13:19.679 showing these huge games and rents, you know, late last year, 0:13:20.120 --> 0:13:23.160 last spraying, last summer, so we knew that this was 0:13:23.280 --> 0:13:25.360 likely going to enter in the CPI this year. The 0:13:25.440 --> 0:13:28.160 question was always about magnitude, so whether it was going 0:13:28.200 --> 0:13:30.760 to be up six percent this year or seven percent, 0:13:30.800 --> 0:13:33.959 which looks like we're headed for that some number. Um. 0:13:34.000 --> 0:13:36.840 So to me, like, that's not really a surprise. On 0:13:36.880 --> 0:13:39.000 the services side, I think most people who tracked this 0:13:39.040 --> 0:13:41.600 stuff closely realized, hey, reds are gonna be up a 0:13:41.600 --> 0:13:44.680 lot this year, probably someone in the six summers a range. 0:13:45.040 --> 0:13:47.959 It's the other part of services and the non shelter 0:13:48.080 --> 0:13:51.280 service stuff that I think is the more interesting part 0:13:51.600 --> 0:13:54.560 of the story, and they're what you'll find is a 0:13:54.559 --> 0:13:57.400 lot of people talking about how wages are driving those 0:13:57.440 --> 0:14:01.840 services up. Um, you know how um all of these 0:14:01.840 --> 0:14:04.640 other costs in the non shelter services, those are the 0:14:04.640 --> 0:14:07.760 sticky elements of inflation. And until that stuff starts to 0:14:07.840 --> 0:14:09.880 roll down, you know, it's gonna be really hard to 0:14:09.920 --> 0:14:13.680 get correflation down. I would actually sort of counter that 0:14:13.720 --> 0:14:16.680 a little bit by arguing that a lot of what 0:14:16.840 --> 0:14:19.440 you've been seeing, and this has been true since really 0:14:19.560 --> 0:14:22.880 last probably I would say fall, is we've had a 0:14:22.880 --> 0:14:26.280 lot of oscillation in that non shelter service employment, and 0:14:26.360 --> 0:14:30.000 that's mostly because of sort of the economy reopening and 0:14:30.040 --> 0:14:33.200 closing and kind of fits its first. So summer of 0:14:33.200 --> 0:14:36.480 twenty one, if you remember, airfare started to jump very significantly, 0:14:36.760 --> 0:14:39.120 started traveling a bit again. So a lot of what 0:14:39.200 --> 0:14:41.480 was driving services at that point was actually things like 0:14:41.560 --> 0:14:45.400 affairs and hotels. It wasn't medical care services, it wasn't 0:14:45.440 --> 0:14:49.440 recreation services, you know, it was really personal care services. 0:14:49.440 --> 0:14:51.960 It was these sort of reopening categories, if you will. 0:14:52.520 --> 0:14:55.320 Then you had you know, I think Delta was was 0:14:55.400 --> 0:14:58.440 later in that year. Prices for those categories spell the 0:14:58.480 --> 0:15:02.920 non shelter services inflation actually decelerate very sharply. So basically 0:15:02.960 --> 0:15:06.160 what you've seen up until really pretty recently, it's just 0:15:06.360 --> 0:15:09.040 this quarter to quarter oscillation that's been going on in 0:15:09.040 --> 0:15:13.080 the non shelter um services in next really just reflecting 0:15:13.120 --> 0:15:16.560 kind of the economy reopening and then slowing down. And 0:15:16.600 --> 0:15:18.560 we got the same dynamic to spring, by the way, 0:15:18.600 --> 0:15:20.680 when the airfare spite and now they've been down the 0:15:20.760 --> 0:15:23.120 last few months, and so the non shelter stuff is 0:15:23.200 --> 0:15:41.800 kind of moderating a little bit again. So let's talk 0:15:41.840 --> 0:15:44.520 a little bit more on rent specifically for two reasons. 0:15:44.520 --> 0:15:47.360 A because it is such a big part of uh, 0:15:47.440 --> 0:15:49.560 you know, core cp I, but also it's one of 0:15:49.600 --> 0:15:52.320 the most like people feel it and people complaining. Certainly 0:15:52.320 --> 0:15:54.960 in New York everyone is aware of just like how 0:15:55.000 --> 0:15:59.880 brutal the rent market is. But also elsewhere you mentioned there, 0:16:00.120 --> 0:16:03.240 we sort of had reason to think that this number 0:16:03.320 --> 0:16:07.000 was coming in part because the private surveys, We're flagging 0:16:07.040 --> 0:16:09.880 this several of like maybe even a year ago, the 0:16:09.960 --> 0:16:13.320 Zillois and all this. So for there reasons, one big 0:16:13.400 --> 0:16:16.480 question which is like, is the data stale? And at 0:16:16.480 --> 0:16:18.680 a time when people are worried about, oh are we 0:16:18.720 --> 0:16:20.840 going to create is the Fed going to create a recession? 0:16:21.240 --> 0:16:24.080 Is it being too aggressive? Uh? In light of you know, 0:16:24.160 --> 0:16:27.800 is it whatever? Is it operating on old data that's 0:16:27.840 --> 0:16:31.560 not as timely as what the private sector surveys are showing. 0:16:31.840 --> 0:16:35.440 Is the public data stale? So I wouldn't necessarily say 0:16:35.560 --> 0:16:37.960 it's scale. I would just say that it measures something 0:16:38.080 --> 0:16:41.160 different than what these private sector indussees are measured. So 0:16:41.200 --> 0:16:44.760 most of these private sector industries are measuring new leases. 0:16:45.160 --> 0:16:47.160 So when you think about moving into a new apartment 0:16:47.200 --> 0:16:50.160 beside a brand new lease, that's what they are capturing 0:16:50.200 --> 0:16:52.120 and capturing that change in the right for that unit 0:16:52.200 --> 0:16:55.840 with a new tenant versus whatever it ready for for 0:16:55.840 --> 0:16:58.680 for the last ten And that's true of all most 0:16:58.680 --> 0:17:01.120 of these apartment list of lists on and so it's 0:17:01.160 --> 0:17:05.040 really just one segment of um the market that those 0:17:05.119 --> 0:17:08.560 private private measures are capturing. The CPI is capturing the 0:17:08.760 --> 0:17:11.600 entire rental markets. So it's not just people who are 0:17:11.640 --> 0:17:14.560 looking for new apartments were signing new leases. It's also 0:17:14.600 --> 0:17:18.880 people who are renewing their lease, and it's also people 0:17:18.920 --> 0:17:21.840 who are currently renting and still all on the same 0:17:21.880 --> 0:17:25.120 lease they were, you know, five months ago. So they 0:17:25.119 --> 0:17:27.760 want to capture the entire market versus just a slice 0:17:27.840 --> 0:17:29.879 of the market. So in that sense, I don't think 0:17:29.920 --> 0:17:33.120 it's stale. Now that said, you know, when you think 0:17:33.160 --> 0:17:35.600 about is a FED operating on old day, we do. 0:17:35.720 --> 0:17:38.080 We do know that it lacks right before this very reason, 0:17:38.680 --> 0:17:42.240 it doesn't capture the BLS, doesn't capture turning points in 0:17:42.320 --> 0:17:46.800 the market as as well as these private sector measures. Right, 0:17:46.920 --> 0:17:49.880 if if something is changing in the marketplace, those new 0:17:50.000 --> 0:17:52.440 lease the way those new leases are changing is gonna 0:17:52.440 --> 0:17:55.480 be a much better indicator what's happening then than the CPNI. 0:17:55.920 --> 0:17:59.040 That's true. But it's not as if the Fed number 0:17:59.040 --> 0:18:02.320 one doesn't watch their private sector measures, not that you know, 0:18:02.400 --> 0:18:04.600 they don't understand the lags. I mean, if I understand 0:18:04.600 --> 0:18:07.879 the lags that rent and other people do, I promise 0:18:07.920 --> 0:18:10.480 you the folks that the FED do as well. Uh So, 0:18:11.400 --> 0:18:13.840 I don't think that they are you know, sitting here 0:18:13.880 --> 0:18:16.760 working on on the sort of lagging indicators if you will, 0:18:17.560 --> 0:18:21.040 because they are. They're capturing in a huge amount of 0:18:21.119 --> 0:18:24.400 data to look at what's happening in India shelter um 0:18:24.400 --> 0:18:27.560 and they also kind of see where shelter is likely head. Right, 0:18:27.640 --> 0:18:30.080 These private sector measures have started to roll over the 0:18:30.160 --> 0:18:32.040 last you know, depending which one you want to look at, 0:18:33.000 --> 0:18:36.200 four to seven months, they've been slowing down quite a bit. 0:18:36.680 --> 0:18:40.919 So another thing related to housing and the cost of shelter, 0:18:41.000 --> 0:18:43.320 which again it seems important because of the way and 0:18:43.359 --> 0:18:45.639 just how much, not how important it is for the public. 0:18:46.119 --> 0:18:50.320 We have seen a clear slow down in anything related 0:18:50.320 --> 0:18:52.840 to home buying and home purchasing, and of course that 0:18:52.960 --> 0:18:56.960 isn't I don't believe is that captured directly historically speaking? 0:18:57.200 --> 0:19:01.200 Is there a relationship or a stable relationship between activity 0:19:01.200 --> 0:19:03.600 and the home purchase market. The price of a house, 0:19:03.800 --> 0:19:06.280 the price of a monthly mortgage, which is shot up 0:19:06.320 --> 0:19:08.359 if you're just if you're buying a house today verse 0:19:08.359 --> 0:19:11.800 a year ago, and then what feeds through into rent prices? 0:19:11.880 --> 0:19:13.040 Can I just say that was going to be my 0:19:13.080 --> 0:19:15.919 next question. We've been working together so long, we always 0:19:15.920 --> 0:19:17.600 do that, We keep asking the same questions, But can 0:19:17.640 --> 0:19:19.919 I tag onto that? So one thing I've heard is 0:19:20.320 --> 0:19:23.560 there are some people who say that, like interest rates 0:19:23.600 --> 0:19:27.760 going up could end up increasing the pressures on rent 0:19:27.920 --> 0:19:31.320 because more people decide they're not going to buy houses right, 0:19:31.320 --> 0:19:33.560 They're going to stay where they are, keep renting an 0:19:33.560 --> 0:19:36.840 apartment and things like that. Yeah, so on that latter point, yes, 0:19:36.880 --> 0:19:39.840 that's that's very possible. Um, you know, if it's getting 0:19:39.840 --> 0:19:42.080 too expensive to get a mortgage, or you can't find 0:19:42.080 --> 0:19:44.600 a house to buy, you renew your lease, or you 0:19:44.600 --> 0:19:48.120 you know, are moving into the apartment, that certainly can 0:19:48.280 --> 0:19:51.919 actually push rents up in the short term until supply 0:19:52.080 --> 0:19:54.439 does eventually catch up. But yeah, that's that's very possible. 0:19:54.520 --> 0:19:57.280 We've seen that happen before. Uh, in terms of the 0:19:57.320 --> 0:19:59.600 idea of you know, the housing market and and her 0:19:59.720 --> 0:20:02.160 versus activity. It really is kind of what you're talking about, 0:20:02.200 --> 0:20:04.800 which is the knock on effect on the rental market. 0:20:05.160 --> 0:20:07.280 That's really the way it's going to feed through into 0:20:07.320 --> 0:20:10.919 the rent index because you know, contrary to popular belief, like, 0:20:11.119 --> 0:20:14.360