If you’ve been paying attention to the official, reported rate of inflation, you’ve probably noticed something very strange going on. How is it that when we go to the supermarket to buy food,
the prices have risen dramatically within recent years, and yet the reported rate of inflation is just a minuscule 2.4%? Then when you look at things like the cost of housing, the cost of energy, and the cost of many other items that we all purchase on a regular basis, those prices have been rising considerably, too.
What’s been happening is that the government has been changing both the items utilized when calculating the inflation rate, and changing the weighting of those items within the overall calculation of the index, too. So while we all may be feeling the pinch financially whenever we’re buying the items that we consume within our day-to-day lives, those items may not be given the exact consideration that many of us believe they should be when the cost-of-living index is calculated.
With this in mind, The Chapwood Index was created, and it shows us what the real rate of inflation would be when utilizing the prices of 500 items that people are likely to consume in their day-to-day lives. In addition, when this has been done, the results are shocking. The index shows us that in many major U.S. cities, the real annual rate of inflation has been between 9% and 12%, depending on the city, and you can see these results by visiting ChapwoodIndex.com.
So what this then means for leases that have cost-of-living adjustments in them is that the tenants will be paying less rent than would normally be called for when the cost-of-living adjustments are made, and the owners will be receiving less rent than would normally be reflected if the true cost-of-living adjustments had been made. In addition, this will hold down the upward adjustments in both government employees’ pay, and in people’s pensions, too. So what we are looking at here is a massive transfer of money from certain sectors of the economy, to others.
With this in mind, if you’re a landlord signing leases with cost-of-living adjustments in them, what can you do? You’re not likely to get your tenants to sign leases with rent increases tied to the Chapwood Index, and your only other course of action might be to have rent increases of specific amounts or percentages within your leases, with these amounts then being higher than the officially reported rate of inflation. But then again, you’ll need to get the tenant to go along with this.
But on the other side of the coin, if you’re a tenant who has cost-of-living adjustments specified within your lease, recognize that you are getting a very nice subsidy.