Housing Is Fed's Secret Weapon in Battle Against Inflation
Shelter costs are on the decline and should keep the central bank from raising borrowing costs much further - if at all.
There’s a building boom underway. i
Photographer: Brandon Bell/Getty Images
The consumer price index report for July showed the smallest back-to-back monthly increase in two years. This is welcome news in the battle to tame inflation but the even better news was buried deep in the report. There, it was revealed that rising shelter costs accounted for a whopping 90% of the increase in the CPI. Why is that good? Because the category is notoriously out of date and most likely already in decline, making the moderate inflation data even more benign in reality.
Let’s start with what shelter costs are and how they are measured. The Bureau of Labor Statistics calculates this metric - which accounts for about a third of CPI – by looking at changes in actual rents and something called owners’ equivalent rent. That second part is essentially a survey-informed assessment of how much homeowners think they could get by renting their home.