The following chart shows the effect if one substitutes the Case-Shiller housing index for Owners' Equivalent Rent in the CPI.



Case-Shiller-CPI (CS-CPI) vs. CPI-U







click on chart for sharper image.



The above chart is courtesy of my friend "TC" who writes:



For Dec 2008 the CS-CPI fell to a stunning negative 5.0% year-over-year as compared to a positive 0.1% for the CPI-U. Moreover, the Government OER data continues to move higher while home prices continue to move lower amplifying the divergence between the two CPIs to its largest level ever. The CS-CPI now reflects a price level last seen in Dec 2006.



What is equally amazing is that it was less than 2 1/2 years ago (Sep 2005) when the CS-CPI was positive 7.8% year-over-year and we're now 1280 basis points lower. Deflation is here and it's now even beginning to show in the government's CPI-U data.

understated

overstating