From the BLS
The index for all items less food and energy rose 0.3 percent in May after increasing 0.1 percent in March and 0.2 percent in April. The shelter index rose 0.2 percent in May after increasing 0.1 percent in each of the seven previous months. Both rent and owners’ equivalent rent rose 0.1 percent; the acceleration in shelter was due to the index for lodging away from home, which rose 2.9 percent in May after being unchanged in April.
Increases in the shelter component looked baked into the pipeline to me. Hotels occupancy is rising. The number of living units has not kept pace with population. The number of residential starts is at record lows. Inflation in shelter is coming.
Now I think we should be returning to trend in prices so this doesn’t bother me, but I don’t want everyone to be freaked when core inflation rises over the next 12 months like it was some out of the blue, everything has changed phenomenon. We are not building enough housing and that is going to drive up rents.
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Wednesday ~ June 15th, 2011 at 4:55 pm
Andy Harless
We may not be building enough housing, but there is a lot of slack in the market for owner-occupied housing. Your concept of “enough housing” is relevant when we are near full-employment, but we’re not. The margin where new households are actually being formed has been pushed in dramatically by lack of income, and in the short run there is little prospect for that income moving rapidly toward its long-run path.
This is not to say that we won’t see inflation in shelter costs in the coming months, but I think the apparent inflation is likely to be an artifact of the way the data are collected. Houses — whether or not there are “enough” of them — are empirically cheap to own (relative to recent experience) and apparently getting more so — but only if you can get a mortgage. A lot of new households will have trouble getting a mortgage and will have to crowd into the rental market. But since the distinction here depends specifically on the form of ownership and not on the characteristics of the property, the CPI’s attempt to measure “owner’s equivalent rent” will pick up rental inflation that doesn’t really exist in true ownership costs.
Sunday ~ June 19th, 2011 at 2:13 am
Joe Eagar
I keep expecting collapsed housing prices to feed into lower single family housing rents. In fact, I was kindof hoping for a small boost in lower-income real wages from a smaller cost of living. I guess I was too optimistic.