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Missing the CPI from Transportation

June CPI came out yesterday at 5.4% and people are freaking out. But they are missing that CPI is being driving simply by car prices (which people can skip buying) and oil price recovering. Outside that, CPI is up … 1.7%.

Here’s a chart showing CPI, the contribution of the transportation component, which is oil products and car prices, and then CPI minus transportation.

You can see that CPI has risen rapidly in 2021, but you can see if you remove the transportation component, CPI overall has stayed the same.

In other words, CPI is due to car prices and oil. Oil is at $70 a barrel – nothing crazy. It’s just up huge since the crash in 2020. (Remember when oil was -$32?)

Car prices are high because of a shortage of chips. People can put off buying a car (and probably are) and those prices will come back down.

The bottom line is so far this is just a transitory inflation issue. People are too panicked about the top line number.

By Christopher Schwarz, ago

Location, Location, Location

Whenever you buy real estate, if you ask the 3 most important things, the list is location, location, location. In case, you didn’t believe it, here’s a map between Saturday’s high temps and median house prices in Socal.

Temps in White, House Prices in Green

Yes, there are other factors here, but there’s a reason people when they came to Socal they started building near the coast first.

In case you are curious why this temperature maps happen here but not in places like New England (although it does just not nearly as extreme), all of Socal is basically a desert so everyone should be 120 degrees. The mitigating factor here is the ocean. The Pacific ocean here is VERY cold for the latitude because currents come down from Alaska and bring in cold water.

To give you an idea, the water temps today are:

  • Laguna Beach: 68
  • San Diego: 71
  • Portland Maine: 63
  • Boston MA: 66
  • New York City: 72
  • Savannah GA (Same Latitude): 82

Thus, when the wind blows off the water, it cools down the areas close to the coast. The second mitigating factor is of course elevation.

By Christopher Schwarz, ago