Inflation has been rising on the back of higher housing costs for American households over the past few months, and the recent jump in the main reading of such shelter costs isn’t a blip, according to researchers Randal Verbrugge and Amy Higgins of the Federal Reserve Bank of Cleveland and as reported by The Wall Street Journal.
The consumer-price index, which is a leading arbiter of overall U.S. inflation, hasn’t included home prices since 1983. Instead, the Labor Department calculates “owners’ equivalent rent” to measure shelter’s impact on inflation. It blends actual rents with what homeowners might fetch for their homes if they were rented. OER makes up about a quarter of the consumer-price index.
Economists have said three main factors could help explain a temporary rise in OER:
First, some say a shortage of rental housing could be to blame, but vacancy rates remain close to levels from 1995, before home prices accelerated noticeably.
Second, big declines in unemployment rates could be contributing to rent inflation, the authors say.
Third, rents could rise because home prices are rising again.
