Shelter costs significantly influence the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE), the two main government inflation reports that impact the Federal Reserve and financial markets. Shelter makes up a large portion of these indices (nearly 46% of Core CPI, for example) and therefore plays a crucial role in determining whether inflation progresses towards the Fed’s 2% target.
What’s the bottom line? Currently, shelter costs in the CPI and PCE reports are higher and lag behind real-time rental data that has been reported by Realtor.com, Apartment List, CoreLogic and Zillow. As CPI and PCE reporting begin to better reflect this softer rental data, inflation should decrease. And