Forecasting CPI Shelter under Falling Market-Rent Growth
Christopher Cotton and
John O'Shea
Current Policy Perspectives from Federal Reserve Bank of Boston
Abstract:
Shelter (housing) costs constitute a large component of price indexes, including 42 percent of the widely followed core Consumer Price Index (CPI). The shelter prices measured in the CPI capture new and existing renters and tend to lag market rents. This lag explains how in recent months the shelter-price index (CPI shelter) has accelerated while market rents have pulled back. We construct an error correction model using data at the metropolitan statistical area level to forecast how CPI shelter will evolve. We forecast that CPI shelter will grow 5.88 percent from September 2022 to September 2023 and 3.91 percent over the subsequent 12 months. We demonstrate that the most important factor supporting high future CPI-shelter growth is that a large part of past growth in market rents had not been captured in CPI shelter as of September 2022. We estimate that the headline CPI and core CPI will be 1.05 and 1.34 percentage points higher, respectively, from September 2022 to September 2023 as a result of above-average shelter inflation.
Keywords: rent; housing; CPI; PCE (search for similar items in EconPapers)
JEL-codes: E17 E31 E37 (search for similar items in EconPapers)
Pages: 20
Date: 2023-02-16
New Economics Papers: this item is included in nep-des, nep-mon and nep-ure
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://www.bostonfed.org/publications/current-pol ... ket-rent-growth.aspx Summary (text/html)
https://www.bostonfed.org/-/media/Documents/Workin ... 2023/cpp20230216.pdf Full text (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbcq:95664
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Current Policy Perspectives from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().