by Calculated Risk on 10/22/2014 07:41:00 PM

From Kathleen Madigan at the WSJ: Why Rising Rents Haven’t Pumped Up Inflation

For the 12 months ended in September, [owners’ equivalent rent] OER is up 2.7%, up from 2.2% a year ago. (Actual rent paid by tenants is up a faster 3.3%.)

OER is the big gorilla in the inflation room. It accounts for 24% of the total CPI and 31% of the core. So why isn’t the accelerating OER rate pushing up the core? Because other factors are offsetting the upward push.

The biggest drag is the downward pressure on goods prices coming from overseas. ... On the service side, other major categories have seen a slowdown in markups.

Without OER, inflation would be even lower. If we look at shelter¹, All times less Shelter is up just 1.1% year-over-year, and All items less food, shelter, and energy is only up 0.9%.

Rents can't keep rising this quickly without rising wages. And without rising rents, inflation would be even lower.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 285 thousand from 264 thousand.

• Also at 8:30 AM, the Chicago Fed National Activity Index for September. This is a composite index of other data.

• At 9:00 AM, the FHFA House Price Index for August. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.3% increase.

• At 9:00 AM, the Kansas City Fed manufacturing survey for October.

¹ From the BLS: "Rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence) are the two main shelter components of the Consumer Price Index (CPI)."