Shelter Inflation: Driving With The Rearview Mirror

Nov. 10, 2022 10:23 AM ET5 Comments
Richard Durant profile picture
Richard Durant
4.71K Followers

Summary

  • Cost-push inflation is easing but consumer price inflation will remain high due to the way that the shelter component is calculated.
  • Home prices have already peaked and the rental market is softening, making shelter inflation irrelevant from a forward-looking perspective.
  • Monetary policy is trying to prevent inflation that occurred last year, and in the process, appears to be engineering a recession.

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Upstream indicators of inflation (labor market tightness, commodity prices, supply chain pressure, prices paid by manufacturers, etc.) are normalizing and yet consumer price inflation remains high. Some of this is due to the time lag between when cost pressures ease and when they feed through to

Upstream Inflation Indicator

Figure 1: Upstream Inflation Indicator (source: Created by author using data from

Lag Between Shelter CPI and Current Market Prices

Figure 2: Lag Between Shelter CPI and Current Market Prices (source: Created by author using data from Zillow and The Federal Reserve)

NMHC Apartment Market Tightness Index

Figure 3: NMHC Apartment Market Tightness Index (source: Created by author using data from NMHC and The Federal Reserve)

Contribution of Shelter Inflation to Core CPI Inflation

Figure 4: Contribution of Shelter Inflation to Core CPI Inflation (source: Created by author using data from The Federal Reserve)

Home Prices and Shelter Inflation

Figure 5: Home Prices and Shelter Inflation (source: Created by author using data from The Federal Reserve)

Housing Affordability Index

Figure 6: Housing Affordability Index (source: Created by author using data from The Federal Reserve)

Housing Affordability and Future Housing Returns

Figure 7: Housing Affordability and Future Housing Returns (source: Created by author using data from The Federal Reserve)

Months of Supply of New Houses and Housing Price Changes

Figure 8: Months of Supply of New Houses and Housing Price Changes (source: Created by author using data from The Federal Reserve)

Recessionary Fears and Consumer Spending

Figure 9: Recessionary Fears and Consumer Spending (source: Created by author using data from Google Trends and The Federal Reserve)

This article was written by

Richard Durant profile picture
4.71K Followers
I have been managing my own investment portfolio for the past 9 years with a focus on fundamental research and deep value investing over long time horizons. My primary interest is finding early stage innovations which will create long-term value. I have a Bachelors degree in finance, an MBA and have completed the CFA and CMT exams.richarddurant.substack.com

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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