This Great Graphic
was posted by Hale
Stewart on Seeking Alpha.
It draws on US government data to show the increase in the median asking rent
for vacant units since 1995.
There are other measures of rent, including rent on primary
residences. However, what is important is the trend.
It is important because it is the key to US measures of core
inflation. Rent accounts for 42% of the core CPI basket. That
is a greater weight that core good or core services (excluding rent).
Rents account for 15% of the core PCE deflator, which the Fed targets, and
helps explain the discrepancy between the two measures.
Many economists are musing over what has happened to the savings from the
drop in oil prices. Stewart's post suggests that part of the windfall has
gone to pay rent. By the Census Bureau's House Vacancy Survey,
the asking rents have risen by 9% (~$71 a month) year-over-year in Q1
16. Rent is commanding a greater share of household income.
The March CPI showed that shelter costs had
risen 3.2% over the preceding 12-months.
In addition to shelter costs,
another source of upward pressure on core measures of US inflation is medical
services. The price of medical services has increased 3.6%
year-over-year.
This is not a Sirens' call that
monetary policy is fueling hyperinflation as many economists argued when the
Fed first launched its asset purchase program. Our point is that core
measures of inflation are trending higher,
and that shelter and medical services are important drivers.
Rising shelter costs may be reducing disposable income that the past drop in
gasoline prices was lifting.
The issue in some circles is whether the FOMC will purposely tolerate
inflation that exceeds target to show its symmetrical approach and/or to ensure that disinflation forces are
defeated. We are skeptical of the first argument.
Consider you are driving on the highway. Fiddling with the radio, you
drift a little into the lane to the left. To demonstrate you that have a
symmetrical approach, one does not drift purposely into the lane on the
right.
Disclaimer
Great Graphic: US Rents and Core Inflation
Reviewed by Marc Chandler
on
May 02, 2016
Rating:
Reviewed by Marc Chandler
on
May 02, 2016
Rating:
