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Consumer Price Index

September’s Consumer Price Index didn’t have many things for the Fed to hang its hat on. Monthly headline price increases accelerated from 0.1% in August to 0.4%, and monthly core prices continued to increase by 0.6%.

Shelter, making up nearly a third of the Consumer Price Index, is one of the largest components of inflation. When shelter prices increase, as they did by 0.7% in September, and increase at a faster pace (shelter prices increased “only” 0.5% in July), it puts substantial upward pressure on overall inflation.

Two major components of shelter, rent of primary residence and owners’ equivalent rent, both increased by 0.8% in September. Given that a typical rental agreement gets repriced once per year, the CPI’s sample of rent prices can take a while to flow through to the index.

However, if we look at data that is closer to real-time, such as Zillow’s Observed Rent Index, which looks at rental agreements signed in a given month, monthly increases in rental prices have fallen considerably from their peak earlier this year. While this data set is noisier than CPI’s rent of primary residence, it could indicate that the acceleration of rent prices may be coming to an end, even if it takes a while to flow through into CPI data.

Source: Helios Quantitative Research, Bloomberg, Zillow, Bureau of Labor Statistics