The latest Consumer Price Index (CPI) data revealed shelter costs rose half a percent in August. UBS senior economist Brian Rose joins Seana Smith and Brad Smith to dig into the report and how the Federal Reserve should consider it ahead of its September meeting.
“This is actually quite mysterious how things like OER [owners’ equivalent rent of residences] are accelerating now. So the actual data on leases, we have this high-frequency data showing when people are signing new leases, what their rents are. You know, that peaked out almost two years ago. And to see the OER accelerating at this point is very strange, very difficult to explain,” Rose tells Yahoo Finance.
He calls the data “very noisy,” and notes that the print could be lagging behind reality: “There’s also this question of when the pandemic hit and we had that big run up in rents. The CPI seemed to lag behind the reality. And then there’s this catch-up period, and it looked like that catch-up period was over that we had caught up. But you see the data out this morning, it seems like, okay, maybe we haven’t fully caught up to the sort of understatement that we had early in the pandemic.”
Rose notes that this lag between reality and CPI data is usually 12 months, but this print looks more like 18 months. Due to this and the fact that OER is a theoretical cost, the Fed should not put too much weight into the data. He notes that the inflation rate without shelter is 1.1% year-over year, instead of 3.2%:
“So there’s a real question as to how much growth are we willing to sacrifice, how much pain are we willing to accept in the labor market because of this very technical increase in things like OER.”
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