Personal Inflation Rates Stand 2.3 Percentage Points Higher for Renters than Homeowners

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 7.1% from one year ago through November 2022. While the headline data describe economy-wide inflation for the average consumer, personal inflation rates can look much different depending on if someone rents or owns their home.

To estimate these differences, Chandan Economics recalibrates the so-called "basket of goods" for each group, removing renting-related costs for homeowners and owning-related costs for renters. Further, the methodology assumes a 0% primary residence cost inflation rate for fixed-rate homeowners, as the amount they pay on their mortgages does not change from month to month.

(For a full breakdown of the methodology, see here)

Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was 7.1% in November 2022, falling directly in line with the headline inflation rate and falling 0.7 percentage points from a month earlier. Meanwhile, the adjusted CPI inflation rate for fixed-rate homeowners totaled just 4.8% over the same period, declining by 0.8 percentage points month over month.

Notably, while both groups are still experiencing higher-than-average inflation levels, renters experienced the brunt of pricing pressures in the past year and have seen conditions improve more slowly. As a result, the spread between Renter and Fixed-Rate Homeowner personal inflation rates reached 2.3 percentage points in November— a new record high.[1] Between 2014 and 2020, the personal inflation rate for renters averaged 1.1 percentage points higher than for fixed-rate homeowners. Moreover, this differential remained consistent, never dropping below 0.9 percentage points or rising above 1.2 percentage points.

In the months ahead, assuming the Federal Reserve continues to regain control over price stability through monetary tightening, the personal inflation rates for renters and homeowners alike should continue to fall. However, as explored in a recent analysis with our research partner Arbor Realty Trust, CPI for rent often lags behind changes in market pricing. Consequently, even as inflation rates are expected to improve across the board, renter inflation should hold higher for longer, creating more substantial inflation spreads between renters and fixed-rate homeowners.

[1] Only considers data since 2000.