Could Housing Help Lower Inflation?

Shelter costs oversized impact on inflation has made housing enemy number one of the Federal Reserve as the central bank tries to get inflation back to their 2% mandate. However, Gwynn Guilford in The Wall Street Journal writes that “Surging housing costs helped keep inflation high this year but have likely already swung into reverse, economists say.”

  • Back To Normal By 2024. Alan Detmeister, economist at UBS, told the Journal that rent increases are now “coming in at or below their prepandemic pace…That suggests we should now be past the peak for monthly CPI rent increases.” As a result, he predicted, inflation could be below the Federal Reserve’s 2% target by 2024.
  • Sticky. The only problem with this theory is that shelter inflation tends to be sticky, meaning that once moving in any direction, it is slow to change. Guilford explains why “This has much to do with how it is calculated by the Labor Department’s Bureau of Labor Statistics. OER isn’t based on home prices or mortgage payments because home purchases are an investment, not just a commodity. Instead, the Bureau of Labor Statistics bases OER on what an owner would have to pay to rent her own home, drawn from rents in high-homeownership areas.”

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