Another Hotter Than Expected CPI Led By Shelter, Up Another 0.6 Percent

CPI data from the BLS, chart by MishHotter Than Expected

Energy declined 0.9 percent for the month preventing a disastrous headline number.Yet Another Groundhog Day for RentI 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  for the more details. CPI Month-Over-Month Details

CPI Year-Over-YearCPI data from the BLS, chart by MishCPI Year-Over-Year Details

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 MishOER stands for . 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 PricesBased 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 IssuesRather 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 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 WrongFor further discussion of rent, please see my January 1, 2024 post I address seasonality, five different measures of rent, and how the BLS smooths things out.Factor in BidenomicsIn 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 Biden taunted the Supreme Court on Student Debt Cancellation: Biden’s regulations, big union wage increases, and student debt cancellation are all inflationary.Big Explosion of Government and Social Assistance JobsPresident 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 Fed Chairman Tells 60 Minutes US Fiscal Path is UnsustainableFed Chair Jerome Powell tells 60 Minutes that it’s “urgent” the US address its “Unsustainable Fiscal Path”Please consider 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 ControlOn top of the Fed distortions and Bidenomics, there is no fiscal discipline in Congress.For example, please see 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: