Over the 12 months ending Mar-23, the Consumer Price Index (CPI) increased 5.0%; this was the smallest 12-month increase since the year ending May-21. Energy prices decreased 6.4% since Mar-22. Commodities rose by only 1.53%. The BLS also released its core PCI inflation number for Mar-23. Core CPI rose 5.6% from a year ago and is still above the Federal Reserve’s 2% target (see Table 1).
Other sections of the economy, however, are not slowing as fast as commodities. The U.S. rental market is still running too hot. The BLS is trying to measure monthly aggregate personal expenditures on housing. The BLS measures housing costs using its “cost of shelter”.
The CPI cost of shelter is essentially the sum of two components: The first, is a measure of the rents paid by apartment tenants in multi-unit structures for their primary residences. This measure is called CPI rent (or tenants’ rent). The second is an estimate of the rent that owner-occupied housing could command called Owners’ Equivalent Rent (OER). These measures tend to move together as the OER of a specific owner-occupied unit is estimated in part by observed actual rents on similar types of properties. Owner equivalent rent, tenant’s rent and combined shelter represent 29.9 percent, 9.6 percent and a total 42 percent of core CPI, respectively. In Table 1, shelter increases by 8.18% in Feb-23.
Going forward, this high growth rate (above the 2% desired by the Federal Reserve) is likely to continue. Charts 1 through 3 show the problem.
