Headline inflation gauge does not fully capture refrigeration rent growth

Refrigeration is one of the main components supporting consumer prices, but it has not yet been reflected in the government’s inflation gauge, according to experts.

The shelter component of the CPI – which includes rent and rent equivalent – makes up 30% of overall inflation and 40% of the core CPI, which excludes food and energy prices.

Real-time data shows rents are falling, but the survey used to determine home prices lags behind current prices. This disconnect could be a problem because the Fed is relying on that inflation snapshot to determine the course of future interest rate increases.

You probably won’t see much of a slowdown in CPI rents. They visit places once every six months, Alan Ditmeister, chief economist at UBS, told Yahoo Finance. “Most people rent for 12 months, so it tends to be a relatively slow component and will probably be very high for at least the next year.”

Consumer inflation It’s up 8.2% from a year ago, and it’s up 6.6% excluding the volatile food and energy sectors, according to Consumer Price Index Report Released on Thursday.

Housing costs, including rent prices, are a major factor in inflation.

Rent inflation accelerated in the US in September as shelter costs rose 0.7% for a second month. Shelter rent and owners equivalent rent increased 6.7% year over year. The increase in the owner’s equivalent rent was the largest since June 1990.

Data from Realtor.com It found that the median rental price was $1,759 in September, down $12 from the previous month and $22 down from its peak. Across the top 50 metro areas, average rental growth slowed to 7.8% year over year. This reading indicates that the average rental price is posting its second monthly decline in eight months.

According to CoStar, the growth in rental demand is cooling rapidly as well Group Inc. data. Record annual growth of 5.8% in the third quarter, It decreased from 9.2% in the second and 11.4% in the first quarter.

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“The fact that we’ve seen these market prices actually come down suggests that you’re going to see a slowdown in CPI rent, but it’s going to take some time because there’s already been a significant increase in it and you won’t be seeing CPI rents likely to go down or down at any time. Close.

National rental jobs also started to increase as the frequency of newly delivered units nearly doubled, indicating a change in the supply and demand dynamics.

Higher rents have led to “fewer household formations,” James Knightley, ING’s chief international economist, said in a note. “Basically people can’t afford the rent, so cohabiting with friends/family leads to lower demand for apartments and really lower prices.”

Michael Pugliese, vice president and economist at Wells Fargo, estimates that rental price gains will slow until next year. A slowdown in rental price growth could bring inflation closer to the Federal Reserve’s 2% annual inflation target.

“At a high level, the way I think about it is that when you have price increases at such a rapid pace, it is a sign that supply and demand have faltered a little bit,” Pugliese said. “And from the Fed’s point of view, I think it’s trying to bring these two back into alignment as closely as possible.”

Wall Street had been hoping to see evidence of slowing inflation, but the latest CPI data reinforces expectations that the Federal Reserve will continue to raise interest rates in the coming months — even, some argue, may not be necessary yet.

“The rate of change in rent inflation measured by Zillow … tends to drive CPI. Delays vary, but assuming the latter relationship continues, it would be reasonable to expect a few more months — about three — of large month-to-month CPI rent increases. month, followed by an apparent slowdown,” Ian Shepherdson, chief economist at Pantheon Macroeconomics wrote in a note. “Rent Inflation today It does not require further federal action.”

Danny Romero, Yahoo Finance reporter. Follow her on Twitter Tweet embed

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