Wednesday, March 21, 2018

February 2018 CPI

Sorry, I'm a little late with this month's inflation update.

In February, both shelter and non-shelter inflation were basically on target.  The annual rate of inflation for both continues to move sideways, with shelter inflation above 3% and non-shelter core inflation below 1%.

Shelter inflation is receding a little bit, which is strange, since housing starts continue to be below the level required to maintain a stable supply.  This could be something cyclical, or maybe it is a sign that housing is leaving the phase of disequilibrium and the American underclass is slowly moving to the new equilibrium where their real housing consumption will be lower than it used to be.  Higher rents for less housing, which leads to a long term decline in real housing consumption until it settles back at a reasonable nominal portion of household budgets.

Or, possibly, even without a robust homebuilding market to facilitate it, a strong economy is again leading households to move away from Closed Access cities.  Economic strength would allow them to more confidently make the tradeoff between gross income and cost of living.  One product of higher quit rates might be that more workers quit their jobs in LA to move to Phoenix or Dallas.  In 2005, there was an outflow of both renters and homeowners.  The flow of homeowners was facilitated by generous lending and high prices on their existing homes.  But, the flow of renters would not be as sensitive to housing markets, so that flow might now be strong because of economic confidence.  This data comes with a lag, though.

1 comment:

  1. 1% inflation on the CPI core sans housing.

    Yet the Fed Beige Books keep talking about labor and not housing.