Monetary Policy & Inflation | US
House Prices Push US Inflation Higher
- By Sam van de Schootbrugge
- 6 min read
Summary
- A new NBER working paper co-authored by economist Larry Summers looks at how rising housing and rental prices will affect US inflation in 2022 and 2023.
- The results are staggering. Housing inflation is set to contribute 2.6pp to YoY core CPI by December 2022 – the most since 1986.
- The predicted rise could completely offset a normalisation of used car and truck prices from 40% to 2%. And, if all other components were at the target rate of 2% YoY, it would keep headline CPI at 3.4% and core CPI at 3.8%.
Introduction
For the first time this century, UK households are paying 40% of their pre-tax incomes on rent. It is a symptom of ballooning prices in the residential real estate market. Prices in the UK and US are both up over 10% YoY and, with incomes struggling to catch up, renters and homeowners must now put more aside than ever to pay for accommodation.
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What are the solutions for renters in this case? Would it be to relocate to smaller cities where rent is cheaper? Would that have a knock on effect on existing residents of a smaller town (I.E with influx of citizens, their rent also goes up?)
Was this situation similar to the inflation numbers before the housing market crash in 2008/9?
Thanks for your comment. Think authors are suggesting the contribution of house price growth to inflation is larger now than during the early 2000s
Thanks for your comment William. Renters probably facing a tricky few years. Until the supply of housing units increases, renters will be squeezed by higher rents and lower real incomes (from higher inflation). Will be interesting to see whether the migration persists away from cities as people return to offices.