Chris Rank/Bloomberg

Without Rent, Inflation Might Be Too Damn Low

Shelter can't help the Fed's goal on its own

It's been 10 years since Jimmy McMillan founded a political party based on the notion that rent is "too damn high." The latest inflation data tell us that sustained shelter costs may be the only thing keeping price increases from heading too damn low.

Even after subtracting the oil price plunge from the inflation picture, the core consumer price index, which excludes food and energy costs, flatlined in December, failing to rise for just the second time since 2010.

Bleaker yet for those hoping inflation doesn't fall further from the Federal Reserve's 2 percent goal: If shelter, which makes up about 42 percent of the core index, is removed, price growth looks like this:

CPI core ex shelter TOASTER

That's the core index minus shelter, showing a 0.7 percent increase last month for the slowest pace since February 2004—even before we heard McMillan rally a segment of the political world behind New York multifamily housing costs.

It could be dangerous for central bankers to hang their hats on stable rent rises. Since consumers more easily hold back on purchasing core goods purchases than on paying their landlords, weaker prices in the former could be a sign that Americans will decide to wait for bigger discounts, which could entrench a period of low inflation. 

Among the disinflation culprits in the core in Friday morning's report: apparel, which showed the biggest drop since 1998, and cheaper airfare and used cars and trucks.

Maybe it's time to take that cross-country trip to purchase a flashy vehicle—and drive back in a flashy new outfit, of course. Just don't forget to send in your rent check.

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