"Shelter, you see, which accounts for about 30% of the core CPI (and nearly a quarter of the overall index) is measured not by the dictates of the marketplace, how much houses actually fetch when they're sold, but by a strange -- make that perverse -- yardstick called owners' equivalent rent. Homeowners are asked how much they think they could get were they to rent their abodes.

The result, as Tony Crescenzi, chief bond market strategist for Miller Tabak, deftly puts it, is that "surging housing is suppressing the CPI." Rental income, he reports, has fallen to $147.8 billion, from the peak of $186.6 billion back in April 2002. "This weak pricing pressure in the rental market," he comments, "is weighing upon the owners' equivalent rent portion of the CPI" and, we might add, providing a distinctly distorted picture of what's happening in housing and inflation as a whole."

"The new data show that hourly compensation in businesses outside farming rose 6.3% in the first quarter and 10.2% in the fourth quarter, both estimates substantially higher than previously reported 4.8% and 3.8% increases." (Wall Street Journal, 6/3/05)