The Measurement of Rent Inflation

41 Pages Posted: 21 Jan 2010

See all articles by Jonathan McCarthy

Jonathan McCarthy

Federal Reserve Bank of New York - Research Department

Richard W. Peach

Federal Reserve Bank of New York

Date Written: January 1, 2010

Abstract

Providing for shelter represents a large portion of the typical household budget. Accordingly, rent, paid either to a landlord or to oneself as an owner-occupant, has a large weight in the CPI and in the personal consumption expenditures deflator, resulting in substantial scrutiny of how tenant rent and owners’ equivalent rent are measured in these price indexes. In this paper, we describe how the Bureau of Labor Statistics (BLS) estimates tenant rent and owners’ equivalent rent. We then estimate alternative inflation rates for tenant rent and owners’ equivalent rent based on American Housing Survey data, following BLS methodology as closely as possible. Our alternative tenant rent inflation series is generally consistent with the corresponding BLS series. However, our alternative owners’ equivalent rent inflation series is consistently lower than the corresponding BLS series by an amount large enough to have a significant effect on the overall inflation rate. This result is driven by the inverse relationship between rent inflation and the level of monthly housing cost evident in the American Housing Survey data.

Keywords: CPI, housing markets, rental prices, American Housing Survey

JEL Classification: R31, E31

Suggested Citation

McCarthy, Jonathan and Peach, Richard W., The Measurement of Rent Inflation (January 1, 2010). FRB of New York Staff Report No. 425, Available at SSRN: https://ssrn.com/abstract=1539530 or http://dx.doi.org/10.2139/ssrn.1539530

Jonathan McCarthy (Contact Author)

Federal Reserve Bank of New York - Research Department ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-5645 (Phone)
(212) 720-1844 (Fax)

Richard W. Peach

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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