Differences in Renter-Homeowner Personal Inflation Rates Reach a Record High

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 7.7% from one year ago through October 2022. 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 recalibrated the so-called "basket of goods" used to weight the overall price index. For the renter estimation, components relevant to homeownership are stripped out. For homeowners, naturally, rental costs are removed from their basket.

Our analysis goes one step further and reconsiders housing costs for homeowners. While the BLS’s owner’s equivalent rent index is meant to track housing market prices, it is a theoretical measurement and is not a cost incurred by homeowners. For homeowners with fixed-rate mortgages, their direct housing costs (i.e., paying their mortgage) are the same this year as it was last year. In other words, their inflation rate for this component would be 0%.

Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was 7.8% in October 2022. Meanwhile, the adjusted CPI inflation rate for fixed-rate homeowners totaled just 5.6% over the same period.

Renter Inflation Vs Homeowner Inflation

Notably, while both renters and homeowners are still experiencing higher-than-average inflation levels, the spread between the two has never been wider than today.[1] Between 2014 and 2020, the personal inflation rate for renters averaged 1.1 percentage points higher than for fixed-rate homeowners. Moreover, this differential remained consistent, never dropping below 0.9 percentage points or rising above 1.2 percentage points. As of the October 2022 observation, this spread has increased up to 2.2 percentage points.

Renter-Homeowner Inflation Spread

In the months ahead, assuming the Federal Reserve is successful in its effort to regain control over price stability, the personal inflation rates for renters and homeowners alike should continue to fall, as they have in recent months. However, because CPI for Rent often lags changes in market pricing, renter inflation should hold higher for longer, creating more substantial inflation spreads between renters and fixed-rate homeowners.

[1] Only considers data since 2000.