Rent Growth Is Slowing. Why Doesn’t Inflation Show It?

Estimated reading time: 3 minutes

Data Divergence

Housing costs are a huge part of the average American’s budget. But the data on rent growth is wonky, painting a confusing picture for policymakers.

In recent months, private-sector data like Zillow’s (Z) Observed Rental Index has shown a deceleration in the cost of new leases for houses and apartments. But inflation measures like the Labor Department’s Consumer Price Index (CPI) still show rent costs trending up. So where’s the disconnect?

The Price Puzzle

The disconnect stems from the methods the government uses to calculate rent inflation.

The CPI measures continuous rent prices – but most people don’t resign their leases on a monthly basis. That’s why the continuous measure of rent prices takes much longer to reflect what’s going on in the market of newly signed leases. And after the rapid rise in rent during the pandemic, existing rental agreements may still reflect higher costs.

Indeed, the Labor Department’s New Tenant Rent Index, which measures new leases, tells a different story than the CPI numbers. In December, the CPI showed rents increased 0.4% month-over-month, and 6.5% year-over-year. But the New Tenant index showed a record 4.7% decline of rent prices in the fourth quarter.

The Inflation Impact

Fed officials and economists expect the contradictory data to play catch-up in the coming months. After all, the Fed is keeping a keen eye on monthly inflation developments. And even though the CPI isn’t the central bank’s preferred measure of inflation, the last report was heavily skewed by the seemingly higher rents represented in the continuous measure.

Fed Governor Christopher Waller echoed this sentiment in a recent speech, saying the central bank has expected shelter inflation to moderate for some time already, but “it’s just taking a while to show up in the official CPI data”.

Disclaimer
SoFi Securities (Hong Kong) Limited and its affiliates (SoFi HK) may post or share information and materials from time to time. They should not be regarded as an offer, solicitation, invitation, investment advice, recommendation to buy, sell or otherwise deal with any investment instrument or product in any jurisdictions. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
SoFi HK does not make any warranties about the completeness, reliability and accuracy of this information and will not be liable for any losses and/or damages in connection with the use of this information.
The information and materials may contain hyperlinks to other websites, we are not responsible for the content of any linked sites. The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi HK. These links are provided for informational purposes and should not be viewed as an endorsement. The risk involved in using such hyperlinks shall be borne by the visitor and subject to any Terms of Use applicable to such access and use.
Any product, logos, brands, and other trademarks or images featured are the property of their respective trademark holders. These trademark holders are not affiliated with SoFi HK or its Affiliates. These trademark holders do not sponsor or endorse SoFi HK or any of its articles.
Without prior written approval of SoFi HK, the information/materials shall not be amended, duplicated, photocopied, transmitted, circulated, distributed or published in any manner, or be used for commercial or public purposes.