CPI data from the BLS, chart by Mish

Hotter Than Expected

• The CPI was hotter than expected in January, up 0.3 percent vs a Bloomberg consensus expectation of 0.2 percent.
• All items excluding food and energy rose 0.4 percent vs an expected 0.3 percent.
• Year-over-year the CPI rose 3.1 percent vs an expected 3.0 percent.
• Year-over-year the CPI excluding food and energy rose 3.9 percent vs an expected 3.7 percent.

Energy declined 0.9 percent for the month preventing a disastrous headline number.

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 December. Rent of primary residence has gone up at least 0.4 percent for 29 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, 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.

Moreover, some of the alleged declines failed to take in seasonal adjustments. Most people move between May and September. It’s harder to fill a lease in December pressuring rents in the winter.

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 0.3 percent in January on a seasonally adjusted basis, after rising 0.2 percent in December.
• The index for shelter continued to rise in January, increasing 0.6 percent and contributing over two thirds of the monthly all items increase.
• The food index increased 0.4 percent in January, as the food at home index increased 0.4 percent and the food away from home index rose 0.5 percent over the month.
• The energy index fell 0.9 percent over the month due in large part to the decline in the gasoline index.
• The index for all items less food and energy rose 0.4 percent in January. Indexes which increased in January include shelter, motor vehicle insurance, and medical care. The index for used cars and trucks and the index for apparel were among those that decreased over the month.

CPI Year-Over-Year

CPI data from the BLS, chart by Mish

CPI Year-Over-Year Details

• The all items index rose 3.1 percent for the 12 months ending January, a smaller increase than the 3.4-percent increase for the 12 months ending December.
• The all items less food and energy index rose 3.9 percent over the last 12 months, the same increase as for the 12 months ending December.
• The energy index decreased 4.6 percent for the 12 months ending January
• The food and beverage index increased 2.6 percent over the last year. But food away from home was up 5.1 percent.
• Rent of primary residence was up 6.1 percent from a year ago outpacing wage increases.

The Fed watches core CPI, the CPI excluding food and beverages. It would like to see 2.0 percent inflation.

The last three core readings were 4.0 percent, 3.9 percent, and 3.9 percent. Progress has stalled.

CPI Month-Over-Month Rent and OER

(Click on image to enlarge)

CPI data from the BLS, chart by Mish

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 are so minor that the correct attitude is “So what?”

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 26.769 percent as of January 2024. Rent of Primary Residence is 7.671 percent. Shelter comprises 36.191 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.

Is the BLS Is Overstating Rent and Exaggerating Inflation?

On December 7, I investigated A Curious Claim that the BLS Is Overstating Rent and Exaggerating Inflation

I provide solid evidence that the BLS has been doing no such thing.

Why Predictions of When the Price of Rent Will Fall Have Been Wrong

For further discussion of rent, please see my January 1, 2024 post Why Predictions of When the Price of Rent Will Fall Have Been Wrong

I address seasonality, five different measures of rent, and how the BLS smooths things out.

Factor in Bidenomics

In addition to the mess the Fed made in housing, one needs to factor in the inflationary impacts of Bidenomics.

Our net zero lesson of the day is The True Costs of Net Zero Are Becoming Impossible to Hide

Biden taunted the Supreme Court on Student Debt Cancellation: “The Supreme Court Didn’t Stop Me”

Biden’s regulations, big union wage increases, and student debt cancellation are all inflationary.

Big Explosion of Government and Social Assistance Jobs

President Biden is bragging about job growth in 2023. But he doesn’t say where those jobs are.

(Click on image to enlarge)

Data from the BLS, chart and calculations by Mish.

On February 5, I noted a Big Explosion of Government and Social Assistance Jobs in 2023 to Help Migrants

Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable

Fed Chair Jerome Powell tells 60 Minutes that it’s “urgent” the US address its “Unsustainable Fiscal Path”

Please consider Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable

The Fed normally does not comment on fiscal policy, but Powell did. “Debt is growing faster than the economy. So, it is unsustainable. … You could say that it was urgent,” said Powell.

I list 15 key takeaways from the interview. Click on the above link for discussion.

Congressional Spending Out of Control

On top of the Fed distortions and Bidenomics, there is no fiscal discipline in Congress.

For example, please see 169 Republicans Vote to Expand Welfare, Bill Heads to Senate

Senate Republicans are pushing free money for Ukraine and Israel while doing nothing about a surge of illegal immigrants.

Despite all of this, the consensus opinion is for a soft landing.

What a hoot. Get real.

More By This Author:

The Fed Is Very Concerned Over Spending And Interest On The National Debt
Credit Card And Auto Delinquencies Soar, Especially Age Group 18 To 39
The True Costs Of Net Zero Are Becoming Impossible To Hide