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Report
Forecasting CPI Shelter under Falling Market-Rent Growth
Shelter (housing) costs constitute a large component of price indexes, including 42 percent of the widely followed core Consumer Price Index (CPI). The shelter prices measured in the CPI capture new and existing renters and tend to lag market rents. This lag explains how in recent months the shelter-price index (CPI shelter) has accelerated while market rents have pulled back. We construct an error correction model using data at the metropolitan statistical area level to forecast how CPI shelter will evolve. We forecast that CPI shelter will grow 5.88 percent from September 2022 to September ...
Newsletter
A Dollar’s Worth: Inflation Is Real
Understanding the reality of inflation can help consumers make decisions in personal finance. Learn more about inflation, how it’s measured, and how the inflation rate is calculated in the December 2021 issue of Page One Economics: Focus on Finance.
Report
What Is Driving Inflation—Besides the Usual Culprits?
The prices of services associated with low-skill workers have been a key driver of “supercore” inflation, which excludes food, energy prices, and shelter prices. Low-skill-services inflation seems to be tied to faster wage growth in those industries coming out of the COVID-19 pandemic. Wage growth in low-skill services has begun to decline, suggesting that there may be lower inflation in these industries going forward. At the same time, wage growth in high-skill services has recently accelerated, suggesting that there may be higher inflation in these industries in the near future.
Report
A Faster Convergence of Shelter Prices and Market Rent: Implications for Inflation
The Federal Reserve currently faces a “last-mile” problem in bringing inflation back to its 2 percent target. Following the series of federal funds rate hikes that began in March 2022 and ended in July 2023, core (excluding food and energy) Personal Consumption Expenditure (PCE) inflation dropped from a year-over-year peak of 5.6 percent in February 2022 to 2.9 percent in December 2023. At the end of 2023, hopes were high that falling inflation would allow the Fed to cut interest rates several times in 2024. However, the disinflation process slowed noticeably in early 2024, prompting ...
Working Paper
The Pass‐through of Gaps between Market Rent and the Price of Shelter
The gap between market rent and the price of shelter was 6.6 percent larger in December 2023 relative to December 2019. Because shelter prices comprise 36 percent of the Consumer Price Index and therefore influence monetary policy decisions, it is vital to understand the pass‐ through of this difference, or “market‐shelter gap.” I use MSA‐level variation to answer this question. When there is a positive market–shelter gap, the price of shelter grows faster and market rent grows slower until the gap closes, which takes about five years. Faster shelter‐price growth and slower ...
Report
The measurement of rent inflation
Shelter represents a large portion of the typical household budget. Accordingly, rent, paid either to a landlord or to oneself as an owner-occupant, has a large weight in the CPI and the PCE deflator. Nonetheless, the way in which rent inflation is measured is not widely understood. In this paper, we describe how the Bureau of Labor Statistics estimates tenant rent and owners? equivalent rent (OER) inflation. We then estimate alternative tenant rent and OER inflation rates based on American Housing Survey (AHS) data, following BLS methodology as closely as possible. Our alternative tenant ...
Working Paper
The Pass‐Through of Gaps between Market Rent and the Price of Shelter
The gap between market rent and the price of shelter was 6.6 percent larger in December 2023 relative to December 2019. Because shelter prices comprise 36 percent of the Consumer Price Index and therefore influence monetary policy decisions, it is vital to understand the pass‐through of this difference, or “market‐shelter gap.” I use MSA‐level variation to answer this question. When there is a positive market–shelter gap, the price of shelter grows faster and market rent grows slower until the gap closes, which takes about five years. Faster shelter‐price growth and slower ...
Discussion Paper
The Global Supply Side of Inflationary Pressures
U.S. inflation has surged as the economy recovers from the COVID-19 recession. This phenomenon has not been confined to the U.S. economy, as similar inflationary pressures have emerged in other advanced economies albeit not with the same intensity. In this post, we draw from the current international experiences to provide an assessment of the drivers of U.S. inflation. In particular, we exploit the link among different measures of inflation at the country level and a number of global supply side variables to uncover which common cross-country forces have been driving observed inflation. Our ...