Over the 12 months ending May-23, the Consumer Price Index (CPI) increased 4.0%. The energy index decreased 11.7% and commodities rose by only 2.0%. Core CPI rose 5.3% from a year ago (Table 1) and is still above the Federal Reserve’s 2% target.
Other sections of the economy, however, are not slowing as fast as energy and 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 2, we see that shelter increased by 8.05% in May-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.