The CPI Rose Sharply In March Led By Shelter And Gasoline

The CPI rose 0.4 percent in March. Rent is up another 0.4 percent in March with gasoline up 1.7 percent. Together, the pair was about half of the total rise.

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CPI data from the BLS, chart by Mish


Yet Another Groundhog Day for Rent

I repeat my core key theme for over two years now. People keep telling me rents are falling, I keep saying they aren’t.

Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.4 percent in March.  Rent of primary residence has gone up at least 0.4 percent for 31 consecutive months! 

The “rents are falling” (or soon will) projections have been based on the price of new leases and cherry picked markets. But existing leases, much more important, keep rising.

Only 8 to 9 percent of renters move each year. It’s been a huge mistake thinking new leases and finished construction would drive rent prices.

The overall CPI and core CPI Joined the party this month, all rising 0.4 percent.

Let’s tune into the BLS Report for the more details. 


CPI Month-Over-Month Details

  • The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in March on a seasonally adjusted basis,
  • The index for shelter, rent, and Owner’s Equivalent Rent (OER) all increased 0.4 percent.
  • The energy index rose 1.1 percent over the month. Gasoline rose 1.7 percent.
  • Shelter and energy contributed over half of the monthly increase in the index for all items.
  • The food index rose 0.1 percent with food at home unchanged but food away from home index up 0.3 percent.
  • The all items less food and energy, labeled the core CPI, rose 0.4 percent for the third month.
  • The price of new and used vehicles declined in March.


CPI Year-Over-Year

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CPI data from the BLS, chart by Mish


CPI Year-Over-Year Details

  • The CPI is up 3.5 percent from a year ago. That’s negative progress compared to the 3.0 percent registered in June of 2023, 9 months ago.
  • Rent of primary residence and shelter are up 5.7 percent from a year ago.
  • Food an beverage is up 2.2 percent from a year ago and perhaps as good as it gets.
  • CPI excluding food an energy, a measure the Fed closely follows is up 3.8 percent from a year ago. That’s 1.8 percentage points higher than the Fed’s 2.0 percent target.
  • Energy is up 2.1 percent from a year ago. Gasoline is up 1.3 percent from a year ago.

Energy has ceased contributing to the easing of year-over-year prices and I expect food will soon be in that category.


CPI Month-Over-Month Rent and OER

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OER stands for Owners’ Equivalent Rent. It is the price people would pay to rent a house unfurnished, without utilities.

People keep repeating the myth that OER is based off the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?

That is false. Rather, that silly question is used to help set CPI weights, not prices. Prices are real measured prices of rent.


Real Measured Prices

Based on minor imputations, some claim OER is not a “real price”.

However, imputations border on trivial. The price is real.


CPI Weights and Other Issues

Rather than bicker over the measured price of OER, the far bigger issue is weight. OER is the single largest component of the CPI with a weight of 26.766 percent as of February 2024. Rent of Primary Residence is 7.655 percent. Shelter comprises 36.222 percent.

Do people pay OER? No they don’t. That’s what’s “unreal”, not the measured price. Roughly 64 percent own their own home with 36 percent renting.

The people who own their own home do not pay rent, they pay a mortgage. Most homeowners refinanced at lower rates, many at or near 3 percent.

Some economists want to strike OER from the CPI on this basis. The problem I have with that idea is “Inflation matters” not just “consumer inflation”. Home prices matter. Asset bubbles matter.

The CPI is totally screwed up as a measure of inflation and ignoring OER and housing bubbles does not address the issue.

The 36 percent of the people who do rent have been royally screwed by Fed policy that inflated assets, especially home prices, in turn causing rents to soar.

Refinancing put extra money in the pockets of homeowners every month. Rising wages with a constant mortgage rate fuels demand for goods and services and that pressures overall inflation.

This is why I expect inflation to be sticker than the Fed believes.


Flashback to Yesterday

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CPI data from the BLS, chart by Mish

Yesterday I noted Expect Year-Over-Year Inflation to Increase

Expect a year-over-year increase of 3.4 to 3.5 percent this month, but rent is a wild card.

There’s a decent number of monthly increases of only 0.1 percent or 0.2 percent comparisons coming up.

Unless the price of rent renewals collapses, it will be tough for the Fed to make much headway on year-over-year CPI reports especially if the price of energy shoots up.

I expected year-over-year CPI to rise because of a tough to improve upon figure of 0.1 percent a year ago.


Treasury Yields

Let’s investigate US treasury debt issuance by month and year.

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Data courtesy of SIFMA, chart by Mish

For discussion, please see How Much Treasury Issuance Does the US Add Every Month to Finance Debt?


Pending in Congress

President Biden along with warmongers in both parties want to spend another $100 billion on Ukraine and Israel with no strings attached.

The Wall Street Journal constantly moans about deficit spending except for every warmongering project it sees.

That was my April 4 Hoot of the Day: WSJ Complains of Biden’s Inability to Use the Bully Pulpit


Child Tax Credit Expansion

On January 17, I asked How Much Will That GOP Deal on Child Tax Credits Really Cost?

Amazingly, House Republicans got suckered into child tax care credit expansion.

The unfortunate answer is $1.5 trillion over ten years. There’s now a chance this dikes in the Senate.

Regardless, Deficit spending has gone wild and the economy is not even in recession.

Those expecting the CPI to crash might wish to consider Biden’s energy policies, regulations, tariffs, free money handouts to students, and a big push for more unions and more government.


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