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Shelter CPI is a lagging indicator

Charlie Bilello shared this interesting housing chart in his weekly newsletter:

Shelter is one of the largest components of the CPI index (about a third). And at 7.9% (see above), this is the highest rate of housing inflation since 1982. However, the shelter component — which is largely a combination of rent on a primary residences and the implicit rent that owner occupants would pay if they were renting their homes — has historically been a lagging indicator. Apparently it has something to do with the way that it’s calculated. So for this reason, the shelter CPI has only increased 14.9% since the start of 2020, whereas home prices nationally increased by about 40% and rents increased by about 20%. It’s also why there appears to be a disconnect (in the above chart) with rents. All of this is to say that we might see shelter jump up a bit further as it continues to record what happened over the last few years.

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