November 09, 2021
(The monthly Consumer Price Index (CPI) is scheduled for release by the Bureau of Labor Statistics on Wednesday, November 10th at 8:30 AM Eastern Time.)
The rent components account for a huge portion of the Consumer Price Index (CPI). Their weight in the overall CPI is more than 31 percent, while it’s almost 40 percent in the core index. Thus far, inflation in the rent components has been relatively restrained, although that may be changing as rents begin to follow house sales prices upwards.
The index for rent proper rose 0.5 percent in September, putting up by 2.4 percent year-over-year. The index for owners’ equivalent rent (OER) rose slightly less, at 0.4 percent in September, putting it up by 2.9 percent for the year.
It is worth noting a sharp divergence between patterns of rent increases across cities, which shows up more in the rent proper index than in the OER index. Many high-priced cities have seen very little increase in the rent index over the last year. In Boston and Los Angeles, rents are up just 1.1 percent over the last year. In Seattle they rose 0.6 percent, in San Francisco they were up just 0.1 percent, and in New York they were flat. They fell by 0.5 percent in the DC metro area.
By contrast, rents rose by 3.8 percent in St. Louis, 6.4 percent in Detroit, and 6.9 percent in Atlanta. This pattern is consistent with the story of people taking advantage of increased opportunities to work from home and move from high priced metropolitan areas to lower priced parts of the country.
This pattern is somewhat less pronounced in the OER index. For example, in Boston the OER index is up 2.1 percent over the last year, and in New York 1.1 percent. While the OER index is derived from surveying rents in comparable units, on average, the comparable units for owner-occupied housing would almost certainly be higher priced than for rental property. This gap could indicate a divergence with the rents on more expensive housing units in these areas rising more rapidly than the rests on more modestly priced units.
The other item that will be worth particular attention in this report is durable goods prices. This is the well-known supply chain issue. We have seen sharp prices in a wide range of durable goods in recent months. New vehicle prices rose by more than 1.0 percent in each of the last five months. Major appliances have risen by more than 1.0 percent in each of the last two months, and furniture and bedding has risen by more than 2.0 percent.
Prices for these items, which are the major factor now driving inflation, will eventually level off and start falling. We are not likely to see price declines in these components in October, but we may see lower increases than in prior months. This will be an important factor if inflation is too slow soon.
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