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The Next CPI Report: Expect Hot Rent, Tame Energy, Rent Matters More

The BLS will release its next CPI report on Wednesday, August 10. Here's an advance look at two key components.
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Rent data from ApartmentList.Com, chart by Mish

Rent data from ApartmentList.Com, chart by Mish

Chart Notes

  • The National Rent Price is from ApartmentList.Com
  • OER stands for Owners' Equivalent Rent, the mythical price one would pay to rent one's own house from oneself, unfurnished and without utilities.
  • Rent of Primary residence is just what it sound like. Rent of Primary Residence and OER are from the BLS.
  • The National Rent price is as of July, BLS data is as of June.

Apartment List Stated Methodology

  • We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory.
  • We capture repeat transactions - when a single apartment gets rented more than once over time - and check whether the transacted rent price has changed between those transactions
  • Rent estimates reflect prices paid by renters, not list prices for units that remain vacant.

Leading and Lagging Indicators

National Rent Index from ApartmentList.Com

National Rent Index from ApartmentList.Com

Key Difference to BLS

Although Apartment List uses repeat rents of the same or similar unit and prices are are actual prices, not asking prices, it only shows new leases, not repeat leases.

Because new leases on vacant units rise much more rapidly than existing leases, its year-over-year numbers rise or fall faster and in greater magnitude.

The National Rent price reflects year-over-year changes, but in reality, people pay the same amount of rent for 12 months then there is one big price jump 13 months later.

That accounts for the BLS lag.

Annual Change in Median Rent 

Annual rent change from ApartmentList.Com

Annual rent change from ApartmentList.Com

Year-to-date rent increases are well behind the pace of 2021 but are nearly double the 2018 pace and nearly triple the 2019 pace.

Rent of Primary Residence and OER combined are over 31 percent of the CPI.

Spotlight Gasoline

Energy is 8.67 percent of the CPI. Gasoline is 4.82%. Energy services (think natural gas) is 3.471 of the CPI.

According to the AAA, the price of gas is $4.11 a gallon. A month ago it was $4.80.

The peak price was June 14 at $5.02. I am guessing we see something on the order of a 20 percent decline in the price of gasoline. 

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Natural Gas

Natural Gas chart courtesy of Trading Economics

Natural Gas chart courtesy of Trading Economics

The price of Natural Gas was about 5.35 on Jul 6. On July 26 it was 7.99. That's a whopping 49 percent rise. If we average that for the month natural gas will go up about 25 percent for the month.

This may balance out the decline in the price of gasoline. 

Rent and Food Will Drive the CPI in July

Energy, despite a huge decline in the price of gasoline, might not subtract much, if anything from the CPI. 

Thus rent, not energy will be the key driver of the CPI report for July, with food a secondary driver. 

Second Straight Amazing Jobs Report

In case you missed it, the jobs report was a big upside blowout. 

For my take please see I'm Calling BS on the Second Straight Amazing Jobs Report, Understanding Why

Accurate or not, the CPI and jobs keep the Fed focused on at least another half-point. 

If the Fed wants to do a three-quarter point hike, it has the justification it needs despite the fact that all of this is lagging.

This post originated at MishTalk.Com

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