How Far Behind The Curve Is The BLS And Fed On Rent Inflation?

There will be upward pressure on rent in the CPI for the next three to six months.

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I created the below chart with a data download from the Apartment List National Rent Report and the St. Louis Fed. 

Over the past 12 months as a whole, rent prices have spiked by 15.3 percent nationally. 

Prices are now starting to decline year-over-year from unprecedented highs having peaked at over 17.8 percent.

Apartment List Stated Methodology

• We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory.
• We capture repeat transactions - when a single apartment gets rented more than once over time - and check whether the transacted rent price has changed between those transactions
• Rent estimates reflect prices paid by renters, not list prices for units that remain vacant.

Apartment List Comments 

While the apartment market has shown some signs of easing, our 5 percent vacancy index remains well below the pre-pandemic norm, and increased pressure in the for-sale market could translate to the rental market as well. As we enter the summer months, we are likely to see continued rent growth through the rental market’s busy season. Despite a recent cool-down, many American renters are likely to remain burdened throughout 2022 by historically high housing costs.

Case-Shiller vs National Rent vs the BLS

• Case-Shiller is a lagging indicator of home prices. The most recent data is from March and it represents sales from three months prior.
• National Rent is is a leading indicator of where rent is headed. Contracts are typically a year or longer and contracts changes over time. 
• The CPI data from the BLS reflects what one is paying now. For roughly eleven of twelve months for the average person, rent does not change at all.

Where to for OER and Rent of Primary Residence

There is upward pressure on BLS measures of rent for perhaps another six months. 

If the trajectory remains what it has been, then year-over-year rent and OER will get to 7.5%. 

CPI Weight

• OER: 23.816%
• Rent of Primary Residence: 7.278%
• Energy 8.295%
• Food: 13.361%

Those numbers are for April 2022 and typically change a bit every month. 

Together, OER and rent of primary residence are over 31% of the entire CPI. 

The four items above are 52.7% of the entire CPI.

Year-over-year prices may stabilize or fall because of difficult comparisons but there is considerable upward pressure on month-over-month numbers.

The Fed is not going to have an east go of reining in inflation.

CPI Year-Over-Year Drops a Bit, But Is it Believable?

CPI data from BLS, chart by Mish

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