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Chart of the Week: US CPI

19 October 2022
Last week’s US CPI surprised to the upside at 8.2% headline and 6.6% core, with one of the highest month-on-month changes in core CPI in recent years. It showed continued broadening in service sector inflation.

The Shelter component in particular continued to accelerate, now at 6.7%. Shelter makes up 32% of CPI and the most dominant part of that, Owner Equivalent Rent (OER), makes up about 23%.

The chart below shows CPI OER alongside the Case-Shiller US housing index and the Zillow rent index – both of these have turned lower in early Q222, while the OER component has continued to accelerate. We expect that OER will follow the moves in rents and house prices some time in Q1.

Why is there such a lag? The CPI is trying to capture price changes in goods and services consumed by households. To gauge this for shelter, the Bureau of Labour Statistics collects data on rents from a 50k residents, this is only sampled every 6 months as rents don’t change frequently. This is for renter-occupied properties not owner occupied, so to get the OER they impute it from average rents paid from comparable rental housing. This leaves us with a lag of somewhere between 6-12month to the general pricing environment.

Even with the current strength in services inflation we remain confident that, all else being equal, CPI will come down as expected from Q1 next year.

US CPI Headline, US CPI Owner Equivalent Rent vs Zillow US Rent Index & Case-Schiller House Price Index – OER

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