US Housing Demand Rises Amid Population Growth, Impacting Core Inflation
The Owners’ Equivalent Rent (OER), responsible for approximately 27% of the Consumer Price Index (CPI), saw a notable increase of 0.49% in August 2024. This marks the most significant rise since January and elevates the year-over-year growth to 5.37%. This is the first increase in OER since it peaked at 8.13% back in April 2023.
Population Surge and Housing Demand
Jim Bianco from Bianco Research emphasizes that the US population has surged by an estimated 7 to 15 million individuals since the year 2020. This unexpected demographic shift has heightened the demand for housing, which may lead to sustained shelter inflation going forward.
Trends in Housing Indicators
The latest trends suggest that the OER is starting to align more closely with leading housing indicators, such as Zillow’s Rent Index and the S&P Case-Shiller Home Price Index, both of which have been on the rise for the past 9 to 14 months.
Implications for Core Inflation Metrics
According to Bianco, OER carries significant predictive power regarding core inflation metrics. The data indicates ongoing upward pressure on shelter costs, which is a critical element of inflation. This suggests that the broader inflation outlook may remain elevated in the short term, but understanding the background of how these numbers are derived is vital.
Adjustments in CPI Calculation
Beginning in 2023, the Bureau of Labor Statistics (BLS) has shifted to annual updates of CPI spending weights, a departure from the prior two-year cycle. Historically, before the 1980s, these updates occurred roughly once a decade. The most recent adjustment was made in January 2023, which reflects consumer spending patterns from 2021.
Long-term Outlook on Inflation Calculations
Given these changes, any updates to core inflation metrics to account for current population levels may take years to materialize, if they do at all. Analysts tracking inflation data must consider these demographic trends and housing market dynamics, as they play a crucial role in understanding the ongoing elements affecting core CPI.
Investing Strategies: The Bitcoin Perspective
For those who view Bitcoin as a potential hedge against inflation, it is important to consider how rising population numbers might influence their investment strategies.
The insights regarding the surge in US housing demand due to population growth and its subsequent impact on core inflation have significant implications for investors and analysts alike.
