Oct 14, 2022 - Economy

Rents are falling, contrary to Consumer Price Index data

Monthly change in average rent
Data: Redfin; Chart: Erin Davis/Axios Visuals

Two reports came out Thursday showing that rents nationwide declined in September from the prior month. And both datasets, from Redfin and Realtor.com, found year-over-year rent growth decelerating.

Why it matters: The slowdown in rents isn't yet showing up in the monthly inflation data. By the CPI's measure — also out Thursday — rents were up 0.8% in September.

  • The difference, as Axios has written, is that the private-market data from the real estate companies covers new rental contracts only; while CPI captures rents more broadly.
  • "Housing is now the most important driver of inflation," noted former U.S. Treasury Secretary Larry Summers earlier this week.

The intrigue: It could take as long as a year for the CPI data to reflect this deceleration, according to research published by the Labor Department last week and tweeted by Summers.

  • The authors of the paper conclude that taking a broader measure of rents, as the CPI does, is the right way to understand price growth — but when it comes to monetary policy they're less sure.
  • They seem to imply the Fed might need to watch the private market data to get a sense of where inflation is right now and react accordingly.

The bottom line: As Pantheon Macroeconomics' chief economist Ian Shepherdson said yesterday, "Evidence of falling inflation is everywhere except in the inflation data."

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