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Disentangling rent index differences: data, methods, and scope

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  • Brian Adams
  • Lara Loewenstein
  • Hugh Montag
  • Randal J. Verbrugge

Abstract

Rent measurement determines 32 percent of the CPI. Accurate rent measurement is therefore essential for accurate inflation measurement, but the CPI rent index often differs from alternative measures of rent inflation. Using repeat-rent inflation measures created from CPI microdata, we show that this discrepancy is largely explained by differences in rent growth for new tenants relative to all tenants. New-tenant rent inflation provides information about future all-tenant rent inflation, but the use of new-tenant rents is contraindicated in a cost-of-living index such as the CPI. Nevertheless, policymakers should integrate new-tenant inflation into inflation forecasts and monetary policy decisions.

Suggested Citation

  • Brian Adams & Lara Loewenstein & Hugh Montag & Randal J. Verbrugge, 2022. "Disentangling rent index differences: data, methods, and scope," Working Papers 22-38R, Federal Reserve Bank of Cleveland, revised 28 Sep 2023.
    • Handle: RePEc:fip:fedcwq:95306
    DOI: 10.26509/frbc-wp-202238r
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    1. Christopher L Foote & Lara Loewenstein & Paul S Willen, 2021. "Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(1), pages 229-259.
    2. Brian Adams & Randal Verbrugge, 2020. "Location, Location, Structure Type: Rent Divergence within Neighborhoods," Economic Working Papers 533, Bureau of Labor Statistics.
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    Cited by:

    1. Christopher D. Cotton, 2024. "A Faster Convergence of Shelter Prices and Market Rent: Implications for Inflation," Current Policy Perspectives 2024-4, Federal Reserve Bank of Boston.
    2. Augustus Kmetz & Schuyler Louie & John Mondragon, 2023. "Where Is Shelter Inflation Headed?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(19), pages 1-6, August.

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    More about this item

    Keywords

    house prices; rent growth; inflation measurement; monetary policy; forecasting; marginal rent growth; average rent growth;
    All these keywords.

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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