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Personal Inflation Rates are 2.6 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 6.0% from one year ago through February 2023. 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. Going 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 month-to-month. (Note: this also applies to households that own their home "free and clear")


(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 6.0% in February 2023, falling directly in line with the headline inflation rate and falling 0.4 percentage points from a month earlier. Meanwhile, the adjusted CPI inflation rate for fixed-rate homeowners totaled just 3.4% over the same period, declining by 0.5 percentage points month-over-month.



According to these adjusted estimates, experienced inflation rates for renters rose to more extreme highs in 2022 and have improved more slowly as compared to fixed-rate homeowners. Experienced inflation rates topped out for both groups in March 2022, with the fixed-rate homeowners and renters seeing peaks of 7.5% and 9.3%, respectively. As the Fed’s fight against inflation has shown progress over the past year, the inflation rate has dropped by 4.1 percentage points for fixed-rate homeowners. Meanwhile, for renters, improvement has come more slowly, with the experienced inflation rate coming down by a lesser 3.3 percentage points over the same time. As a result, the difference between renter and fixed-rate homeowner personal inflation rates has continued to press all-time highs, with the spread reaching 2.6 percentage points in February.[1]




In the months ahead, the personal inflation rates for renters and homeowners alike should continue to fall. However, as explored in a recent deep dive with our research partner Arbor Realty Trust, CPI for rent often lags behind changes in market pricing. These lags in CPI look particularly impactful today. Most sources indicate that market-clearing home prices and rents have fallen in recent months. Even still, the BLS attributes 70% of the month-over-month increase in CPI to shelter costs. Consequently, even as inflation rates are expected to improve across the board, renter inflation should hold higher for longer, allowing substantial inflation spreads between renters and fixed-rate homeowners for the next several months.

[1] Only considers data since 2000.


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