The biggest factor in Americans' cost of living is rising faster than it has in nearly a decade

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SOURCE: BUSINESS INSIDER

URL: http://www.businessinsider.com/shelter-costs-are-driving-inflation-2016-6

by: Akin Oyedele


Shelter costs are still the key driver of inflation.

On Thursday, the latest consumer price index report, which includes subindexes for inflation in different parts of the economy, showed that the shelter index rose 0.4% in May, its biggest gain since February 2007.

The Bureau of Labor Statistics noted that jump was the main reason why core CPI, which calculates everything except volatile food and energy costs, rose during the month.

Bank of America Merrill Lynch economists recently wrote about how owners' equivalent rent, which measures the value of shelter for homeowners by comparing with rental prices for similar homes, is not likely to slow soon.

Owners' equivalent rent is the largest subcomponent of the rent of shelter index, which makes up 32% of the overall consumer price basket.

Because the vacancy rate is falling while demand is rising, rents may continue going up as well.

This is the same supply/demand imbalance that's plaguing the housing market and driving up home prices.

And this chart, via Pantheon Macroeconomics' Ian Shepherdson, illustrates how shelter - the yellow line - has outpaced everything else since mid-2012.