For the 29th consecutive month rent was up at least 0.4 percent. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.
Hotter Than Expected
- The CPI was hotter than expected in January, up 0.3 percent vs a Bloomberg consensus expectation of 0.2 percent.
- All items excluding food and energy rose 0.4 percent vs an expected 0.3 percent.
- Year-over-year the CPI rose 3.1 percent vs an expected 3.0 percent.
- Year-over-year the CPI excluding food and energy rose 3.9 percent vs an expected 3.7 percent.
Energy declined 0.9 percent for the month preventing a disastrous headline number.
Yet Another Groundhog Day for Rent
I repeat my core key theme for over two years now. People keep telling me rents are falling, I keep saying they aren’t.
Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.4 percent in December. Rent of primary residence has gone up at least 0.4 percent for 29 consecutive months!
The “rents are falling” (or soon will) projections have been based on the price of new leases and cherry picked markets. But existing leases, more important, keep rising.
Only 8 to 9 percent of renters move each year. It’s been a huge mistake thinking new leases and finished construction would drive rent prices.
Moreover, some of the alleged declines failed to take in seasonal adjustments. Most people move between May and September. It’s harder to fill a lease in December pressuring rents in the winter.
Let’s tune into the BLS Report for the more details.
CPI Month-Over-Month Details
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in January on a seasonally adjusted basis, after rising 0.2 percent in December.
- The index for shelter continued to rise in January, increasing 0.6 percent and contributing over two thirds of the monthly all items increase.
- The food index increased 0.4 percent in January, as the food at home index increased 0.4 percent and the food away from home index rose 0.5 percent over the month.
- The energy index fell 0.9 percent over the month due in large part to the decline in the gasoline index.
- The index for all items less food and energy rose 0.4 percent in January. Indexes which increased in January include shelter, motor vehicle insurance, and medical care. The index for used cars and trucks and the index for apparel were among those that decreased over the month.
CPI Year-Over-Year
CPI Year-Over-Year Details
- The all items index rose 3.1 percent for the 12 months ending January, a smaller increase than the 3.4-percent increase for the 12 months ending December.
- The all items less food and energy index rose 3.9 percent over the last 12 months, the same increase as for the 12 months ending December.
- The energy index decreased 4.6 percent for the 12 months ending January
- The food and beverage index increased 2.6 percent over the last year. But food away from home was up 5.1 percent.
- Rent of primary residence was up 6.1 percent from a year ago outpacing wage increases.
The Fed watches core CPI, the CPI excluding food and beverages. It would like to see 2.0 percent inflation.
The last three core readings were 4.0 percent, 3.9 percent, and 3.9 percent. Progress has stalled.
CPI Month-Over-Month Rent and OER
OER stands for Owners’ Equivalent Rent. It is the price people would pay to rent a house unfurnished, without utilities.
People keep repeating the myth that OER is based off the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
That is false. Rather, that silly question is used to help set CPI weights, not prices. Prices are real measured prices of rent.
Real Measured Prices
Based on minor imputations, some claim OER is not a “real price”.
However, imputations are so minor that the correct attitude is “So what?”
CPI Weights and Other Issues
Rather than bicker over the measured price of OER, the far bigger issue is weight. OER is the single largest component of the CPI with a weight of 26.769 percent as of January 2024. Rent of Primary Residence is 7.671 percent. Shelter comprises 36.191 percent.
Do people pay OER? No they don’t. That’s what’s “unreal”, not the measured price. Roughly 64 percent own their own home with 36 percent renting.
The people who own their own home do not pay rent, they pay a mortgage. Most homeowners refinanced at lower rates, many at or near 3 percent.
Some economists want to strike OER from the CPI on this basis. The problem I have with that idea is “Inflation matters” not just “consumer inflation”. Home prices matter. Asset bubbles matter.
The CPI is totally screwed up as a measure of inflation and ignoring OER and housing bubbles does not address the issue.
The 36 percent of the people who do rent have been royally screwed by Fed policy that inflated assets, especially home prices, in turn causing rents to soar.
Refinancing put extra money in the pockets of homeowners every month. Rising wages with a constant mortgage rate fuels demand for goods and services and that pressures overall inflation.
This is why I expect inflation to be sticker than the Fed believes.
Is the BLS Is Overstating Rent and Exaggerating Inflation?
On December 7, I investigated A Curious Claim that the BLS Is Overstating Rent and Exaggerating Inflation
I provide solid evidence that the BLS has been doing no such thing.
Why Predictions of When the Price of Rent Will Fall Have Been Wrong
For further discussion of rent, please see my January 1, 2024 post Why Predictions of When the Price of Rent Will Fall Have Been Wrong
I address seasonality, five different measures of rent, and how the BLS smooths things out.
Factor in Bidenomics
In addition to the mess the Fed made in housing, one needs to factor in the inflationary impacts of Bidenomics.
Our net zero lesson of the day is The True Costs of Net Zero Are Becoming Impossible to Hide
Biden taunted the Supreme Court on Student Debt Cancellation: “The Supreme Court Didn’t Stop Me”
Biden’s regulations, big union wage increases, and student debt cancellation are all inflationary.
Big Explosion of Government and Social Assistance Jobs
President Biden is bragging about job growth in 2023. But he doesn’t say where those jobs are.
On February 5, I noted a Big Explosion of Government and Social Assistance Jobs in 2023 to Help Migrants
Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable
Fed Chair Jerome Powell tells 60 Minutes that it’s “urgent” the US address its “Unsustainable Fiscal Path”
Please consider Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable
The Fed normally does not comment on fiscal policy, but Powell did. “Debt is growing faster than the economy. So, it is unsustainable. … You could say that it was urgent,” said Powell.
I list 15 key takeaways from the interview. Click on the above link for discussion.
Congressional Spending Out of Control
On top of the Fed distortions and Bidenomics, there is no fiscal discipline in Congress.
For example, please see 169 Republicans Vote to Expand Welfare, Bill Heads to Senate
Senate Republicans are pushing free money for Ukraine and Israel while doing nothing about a surge of illegal immigrants.
Despite all of this, the consensus opinion is for a soft landing.
What a hoot. Get real.
Even after today’s bedwetting, I’m skeptical that the market has fairly repriced the Fed’s stance and resolve.
Interest rate hikes will discourage investment in new housing. A better policy response to rent inflation is more supply (of affordable housing), not more evictions and homelessness! Note: the total annual HUD budget is less than the Ukraine aid package. If we can afford Ukraine aid, we can afford to triple that part of the HUD budget dedicated to stimulating affordable housing investment.
Raising interest rates, depressing investment and thereby curtailing supply is always the answer to inflation whenever the economy heats up. The one exception to this rule is to greatly increase the supply of workers.
Allowing illegal border crossings to increase by 5x is designed to combat wage inflation. These new arrivals (legal and illegal) — one million per year–also raise pressure on rents, food, you name it, where the working class lives. The donor class is happy.
As for U.S. born workers, let them eat cake!
“A better policy response to rent inflation is more supply (of affordable housing)”
Meaningfully more supply makes near all housing affordable: Tennis socks are affordable; no self promoting five year planned “affordable sock act” needed. Just get the f out of the way of anyone who wishes to knit socks and build houses, anywhere and everywhere, and problem solved. Simple as that.
It is the Bureau of Lying Statistics.
Inflation and unemployment per the BLS are fiction.
Shadow Stats is the more reliable, though SS has had some critics but overall more accurate than the BLS.
link to shadowstats.com
Homeless camps, tent cities, card board box blocks and side street parking vilkages are INDEED the fault of the FED.
They are known as Powelltowns and FEDvilles
Their legacy. They OWN this
They immediately drop their panties and handout trillions to banks and the companies they hold stock in when a tiny but of fear arises. It takes them a single weekend to bail those fukers out. But when it comes to regular people and the younger generations, we are now 4 YEARS in to a 40+ year high RAGING inflation and they are STILL pussy footin around. I despise those criminals
Excuse me, my english probably not good enough to read between the lines , but what are you suggesting, that rates should go down again so that everyone with a pulse can buy a home….again ?
NO!!!! The FFR should have been over 7% in late 2022 and all of 2023 and their illegal balance sheet should be close to ZERO by now. And these criminals whisper to little Nicky Timi about rate cuts coming and all kinds of shady “blackout period” shit. They should have crashed RE, stock market and jobs market but they can’t help themselves as their only priority is to pump bubbles for those that pay their speaking fees and are their future parachute employers
ok, that s exactly what I think then ….
“Congressional Spending Out of Control”
Congress is fighting the FED, which has raised rates to bring down inflation rate. Thus the FED is stuck at higher for longer, with a March cut apparently out the window. Maybe even May.
The other day, Yellen said that prices don’t need to come down, as incomes are rising. An amazing financial intelligence Yellen displays. End sarc.
“Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.4 percent in December.”
I don’t know how rents can fall, with the huge influx of illegal aliens. A record 370,000 in December.
“Owners of homes pay a mortgage…..” Yes, this is true, but some do not have a mortgage. But homeowners due pay property taxes. In most cases, those taxes are increasing. Some homeowners pay HOA’s. Those costs are going up. Homeowners pay utilities. Those costs are going up. Garbage collection? Going up. The only home related cost item to go down or at least stay the same for me has been internet and cable and that is largely because I down-graded. Year over year, it now costs less to fill my Range Rover with gas. Absent gas, this inflation thing seemingly still has its sea legs! Any meaningful up-tick in gas, and all bets are off. The silver lining is that cash, as an investment, get’s a reasonable return…..in a high yield savings account/or a CD.
My HOA dues went up about 40% this year from $1,100 to $1,500. My HOA maintains about 1.5 miles of roadways (including culverts) in the subdivision. We don’t have a pool or other common areas. No common trash pick-up either.
The reason for the increase? Well, prior boards didn’t see the need to continually set aside a little money to cover future culvert/road replacement. They more or less fund those projects as we go. The culvert piping (galvanized steel) is getting close to 50 years old and the numerous culverts in our subdivision are in various states of decay. The lowest quote we got to replace them all was $300k (and thats split between roughly 30 lots….about $10k per lot). Board is attempting to delay as long as possible, but the writing is on the wall. A large special assessment is on the horizon.
Very reminiscent of the deferred maintance alot of condos in Florida have done.
You never hear anyone talking about storm water management and how it is paid for. It’s the least sexy topic for municipalities and apparently HOA’s. But it only comes up after bad storms when the systems can’t meet the flow rates. And in many areas, the existing infrastructure is a century old….or more. Same for the roads. I am sorry for your HOA increase. The “pay now vs pay later” HOA strategy is problematic because you can always get a consensus on not paying. Volunteer HOA boards either work or they do not work. It’s not a case of the often mis-quoted line from Milton Friedman which goes that there is no such thing as a “free lunch.” It’s that there is “no free lunch forever!” And Florida is more than just re-bar stucco deterioration and deferred maintenance. Their property insurance rates are being recalibrated to the actual costs of the risks.
“The “pay now vs pay later” HOA strategy is problematic because you can always get a consensus on not paying. ”
Absolutely 100% true. And that mentality carries over to government as well. Some of the older long time residents have already sold or are hoping to sell before the hammer drops and leave the new owner holding the bag. I’ve only been in my current home for about 3 years so I didn’t have an idea of the totality of the situation. I should have asked more questions while reviewing the HOA documents, but life is full of learning experiences. I simply didn’t notice all of the culverts (around 15) in the subdivision while looking at the property.
lots of cities and towns in same boat. ours is overdue fixing sewer system that will double our rates there
30 lots on 1.5 miles means you have awfully large lots (acre plus?).
That’s a huge amount of money per lot to do that replacement. Good luck to you and the HOA because it’s going to cause a lot of infighting for sure.
That’s why I don’t attend the meetings and never will. To much drama, and the reality is that the culverts need replaced so it makes no sense for me to get pissed about it. My hope is that the board will realize they need to plan better, but I know that won’t happen.
I served on an HOA board once as Vice President. Did one term (3 years) and ran for the hills. One of the worst experiences of my life, and probably the most disappointing.
Lots range from 5 to 6.5 acres by the way.
The filtenship on this site is pervasive. I write a completely simple one liner which goes into memory hole. When I repeat it, it advises me that I repeat post. Did ChatGPT infiltrate the site?
Maybe your one liner sucked. Try harder
With these monthly figures inflation is still 5-10% a year.
As long as the inflation boosts the stocks everyone’s happy. Nothing else matters.
Contrary to Powell, and his economic brethren, banks from a system’s perspective, do not lend deposits. Deposits are the result of lending/investing. I.e., all bank-held savings are lost to both consumption and investment.
The composition of the money stock has changed during c-19. There are now more transaction deposits relative to gated deposits. I.e., the velocity of circulation has increased, raising AD.
Meta [1W] Lazer : Jan 30 2023 to July 10 2023 highs. parallel : Mar 13 2023 low, The
Lazer is hot.
Permanent transitory inflation.
The fat lady sang.
I think she’s living in her car.