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According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 5.0% from one year ago through March 2023. However, while the headline data describe economy-wide inflation for the average consumer, personal inflation rates can differ widely depending on whether 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 one month to another.
(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 5.1% in March 2023, coming in just a hair above the headline inflation rate and reaching the slowest rate of annual increase since April 2021. Moreover, since June 2022, the adjusted CPI inflation rate for renters has come down in eight of the last nine months, dropping by 4.1 percentage points in that time.
Meanwhile, a return to a normal inflationary environment has come more quickly for fixed-rate homeowners (or those that own their homes free and clear). Chandan Economics estimates that the adjusted CPI inflation rate for homeowners was just 2.4% in March, falling from 3.4% the prior month. Between 2000 and 2019, homeowners had an average adjusted inflation rate of 1.4% — a benchmark that no longer seems far out of reach after nine consecutive months of disinflationary progress.
As the Fed’s fight against inflation has shown progress over the past year, both renters and owners have seen an across-the-board easing of inflationary pressures. However, with renters experiencing a higher adjusted CPI than homeowners (9.3% vs. 7.5%) and progress coming more slowly, the inflation spread between these two groups has continued to widen. Through March 2023, the difference between renter and fixed-rate homeowner personal inflation rates have reached another all-time high, hitting 2.6 percentage points.[1]
[1] Only considers data since 2000.
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