How Does Housing Factor into Core Inflation?

Those who live by interest rates pay close attention to the Fed rate cut projections. It's continually looking like there might not be a rate cut this year—except for one with political motivations.

Inflation data just released indicated that the Consumer Price Index rose 3.5% in March, a slight uptick from 3.2% in February. Housing rents made up over 60% of the recent core inflation, overshadowing the cost of goods, services, transportation, etc. However, looking closer at the U.S. Bureau of Labor Statistics data, housing rent was up 5.9%. This data is collected from a survey asking homeowners, “What would you rent your home for?” Talk about subjective data—a survey!

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According to Research and Securites, Inc., the actual annual rental price increase is 3.3%. This is real data on rent growth taken from single-family rentals across the US. If the Fed factored in real data, would the outcome be different? Maybe, maybe not. I remind our investors that the Fed was a year-plus late in raising rates. They will likely be late in lowering rates. The overcorrection will occur as it has happened before, and this time, because the pandemic inflation spike was so painful, I would hedge on the latter of the late side in acting.