Inflation News Is Still Exaggerated by Dubious Shelter Estimates

Consumer Price Index (CPI) inflation has been zero for two months. Over the past 12 months, prices of food at home are up 1.1 percent, and energy prices are up 1 percent. Yet headlines keep focusing on the 12-month averages of 3 percent for the total CPI and 3.3 percent for “core inflation” (less food and energy). Here is the unreported good news: Aside from shelter, CPI Inflation and core inflation rose only 1.8 percent over the past 12 months and were either flat or falling over the last two.

Alan Reynolds

Consumer Price Index (CPI) inflation has been zero for two months. Over the past 12 months, prices of food at home are up 1.1 percent, and energy prices are up 1 percent. Yet headlines keep focusing on the 12-month averages of 3 percent for the total CPI and 3.3 percent for “core inflation” (less food and energy). But there is a big problem: Those 3–3.3 percent figures do not reflect a broadly defined measure of inflation since they are largely dominated by shelter costs.

Widely criticized Bureau of Labor Statistics (BLS) estimates of rent and owners’ equivalent rent (a price nobody pays) account for a third of the total CPI and over 40 percent of the core CPI.

That is why suspiciously extreme estimates of shelter inflation (known to lag reality by 12–18 months) have continually exaggerated reported inflation since July 2022.

As the new BLS CPI news report candidly emphasizes, “The shelter index increased 5.2 percent over the last year, accounting for nearly seventy percent of the total 12-month increase in the all items less food and energy index.”

Here is the unreported good news: Aside from shelter, CPI Inflation and core inflation rose only 1.8 percent over the past 12 months and were either flat or falling over the last two.