Zillow rent index Rent has already slowed down to 6.31% y/y according to the Zillow rent index. Shelter from Cpi, which is mostly measured in an archaic manner, is still measuring 8.12% as of February 2023. The Bureau of Labour statistics should scrap the old way they calculate rent inflation which is simply making random phone calls to home owners and asking them what their house could rent for. Why not use Zillow?
In addition to the manner in which the CPI calculates rent inflation is archaic, the way they calculate it is a lagging indicator compared to prevailing market rate rent prices. In the current system, the BLS looks at rent changes from 6 tranches; namely,
Jan to July
Feb to August
March to September
April to October
May to November
June to December
For instance, when calculating the December rent inflation, the BLS will sum the changes to rent for all 6 tranches and then take the sixth root to capture one month worth of inflation. In other words, it is using data that is up to 6 months old! The July to January change to inflation is still captured in the December inflation number.
If they were to use Zillow, they could eliminate the lag effect on inflation and eliminate the need to justify further rate hikes. According to the latest data, the difference between Zillow rent index and Cpi shelter is 1.81%. If approximately 30% of Cpi is shelter, then a 1.81% change in rent inflation would lower Cpi by 54 basis points all else being equal. Moreover, the Zillow rent index has been trending down which is a positive sign for rent inflation going forward.
https://en.macromicro.me/collections/5/us-price-relative/49740/us-cpi-rent-zillow-rent-yoy