Consumer Price Index inflation estimate could be understating rising housing costs
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2021's CPI inflation number of 7% is high. Increases in housing and rental costs imply inflation may actually be potentially understated. Inflation for December in the U.S. hit a 7% annual increase, the highest rate going back to June 1982 when Reagan was U.S. President. However, there may be a problem with the Consumer Price Index inflation estimate. It could be understating rising housing costs.
Unfortunately there’s some risk that rocketing housing and rental costs suggested by multiple industry sources and indices may make inflation even higher than the 7.0% annual increase reported for December 2021. That’s because the CPI index has housing costs rising just 4% whereas industry sources see prices up as much as 20%. A major difference.) make up a big portion of the inflation estimate.
Housing costs make up almost one third of the inflation price index because so much money is spent on housing. Hence movements on house prices can move the inflation rate a lot. So let’s look at some estimates of how house prices are moving.Case-Shiller house price indices . These have house prices increasing around 17% to 20% for the last 12 months depending on the precise index used, slightly lower for the top 10 or 20 markets, higher for a broader U.S. assessment. Now that’s not quite apples to apples. Since the Case-Shiller series are updated for October 2021, as of the time of writing, so 2 months behind the CPI series. However, that shouldn’t fundamentally change the picture.
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