According to online rental sites, the double-digit jumps in rents that caught the attention of tenants and landlords in 2021-22 may be fading into the past.
The news of smaller rent increases - and even decreases in some areas - is encouraging for tenants and economists but may seem confusingly at odds with monthly shelter inflation figures (rent plus owner’s equivalent rent) in the CPI (Consumer Price Index). These surged to a new high in September.
Rent inflation has an oversized impact on every inflation measure the Federal Reserve watches. Since it takes up nearly a third of CPI, it can have an indirect impact on all our wallets, whether we rent or own.
So, let’s dive a little deeper into why these two indicators are moving in different directions and when and how rent de-escalation might impact renters, the Federal Reserve and the economy.
To understand the full picture of rent inflation, it helps to nail down some definitions first.
Popular rental websites gather data on “new lease rents” – in other words, the asking rents for units that are turning over.
The CPI, in contrast, covers rent data on both new leases and renewal leases for tenants who are staying on.
The CPI also includes an additional measure called “owner’s equivalent rent” – the amount of money a homeowner would be paying in rent to equal their ownership costs.
Since each rent inflation indicator contains different information, our colleagues in Global Investment Research look at multiple sources to paint a complete picture:
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