The Rent Portion of CPI Is a Reminder of Its Impressive Pointlessness

In his 2020 memoir, director Barry Sonnenfeld (Get Shorty, Addams Family Values, Men In Black) described finding a place to live while a film student at NYU in 1975. One of his classmates lived a few blocks from campus across from Tompkins Park. About the area, Sonnenfeld recalled that it “was like living across the street from Vietnam, though not as safe.”

The classmate alerted Sonnenfeld to the availability of a one-bedroom in his building for $238/month. When Sonnenfeld’s mother heard of her son’s living plans, “she wept for days.”

How things change. Allowing for Sonnenfeld’s exaggerations, an area that used to resemble Vietnam is the picture of gentrification today. It’s no reach to say that 1-bedroom apartments are now priced well into the thousands. Call it progress. Major progress. Not so, according to the Consumer Price Index (CPI) that people who should know better accept as a measure of “inflation.”

Bahnsen Group managing partner David Bahnsen is one of the few who knows better. As he reported in a recent client note, rent is weighted at 34% of the CPI calculation, and rent is up 8.1% year over year. From this, Bahnsen calculates that of the 4.9% CPI increase from last month, 2.75 of those points were rent alone.

The rent number in CPI sticks out mainly as evidence of what a pointless and backwards measure CPI is. Think about it. There have been “Tompkins Parks” all over virtually every U.S. city in the years since ‘75. Goodness, the Cabrini Green area in Chicago used to be the projects, but now it’s an impressive address. While walking east past 16^th Street in Washington, D.C. was for decades a death wish, today some of the highest end shops and rents can be found two blocks east of 16^th on 14^th Street.

Crucial about all this is that far from a sign of inflation, rising rents all over the U.S. have signaled soaring prosperity; rising rents the bullish fruits of copious wealth creation. Wealth creation is of course a consequence of investment, and investors put dollars to work in the hope of achieving dollar returns that eclipse the initial amount ventured. Yes, the U.S. has been a great place to put money to work since the 1970s.

That it has ideally alerts readers to the simple truth that rising rents in the decades since Tompkins Park was so dangerous weren’t a sign of inflation, but in reality a lack of it. Really, why put dollars to work if any returns will come back in devalued dollars?

Back to Sonnenfeld, in 1986 he went to work as cinematographer for Joel and Ethan Cohen as they made Raising Arizona. Sonnenfeld got sick on set in Carefree, AZ, but the brothers refused to call an ambulance on their $3,995 first generation Motorola brick phone. Horrified by the first month’s phone bill of $3,000, the directors decided Sonnenfeld would just have to gut it out.

It’s all a reminder that while rents have soared in modern times, prices for former luxuries like mobile phones and calling have plummeted. That’s how prices work in the real economy. Rising prices signal falling prices, and vice versa. Basic stuff.

The thing is, inflation is not rising prices. Inflation is a devaluation of the currency, with higher prices sometimes a consequence. Yet we haven’t had a notably falling currency in recent years. Do with the latter what you will while hopefully seeing through Sonnenfeld that “prices” are a misleading way to measure what is always and everywhere a currency devaluation phenomenon.