Why the Fed Chases Its Tail: Rent Measures vs. Case Shiller

The Rent Café gave me their weighted national rental price data. Let's compare to the CPI and Case-Shiller home prices.

Rent Café vs Owners' Equivalent Rent vs Rent of Primary Residence

Data courtesy of the RENTCafé and the BLS Owners' Equivalent (OER) via Fred the St Louis Fed repository.

The expenditure weight in the CPI market basket for Owners’ equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence:
“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

OER is the largest single component in the CPI. It makes up 24.28% of the index. The CPI category, rent of primary residence is 7.8% of the CPI.

January 2018 Year-Over-Year Comparison

OER Substitutes

  • CPI-U Using Rent Café: 1.97%
  • CPI-U Using Primary Rent: 2.19%
  • CPI-U Using Case-Shiller: 2.85%

The direct cost of purchasing a house is not in the CPI because the BLS considers housing as “capital goods”.

Tail Chasing Exercise

Whether or not one agrees with the BLS treatment, the Fed made a huge mistake ignoring escalating home prices in the housing bubble years.

And they are doing it again now. Another round of asset bubble deflation is coming up.

The Fed chases its tail in a perpetual cycle looking for inflation, not noticing the obvious, measurable price inflation in home prices and other assets.

Mike "Mish" Shedlock

Comments (15)
No. 1-15

I still think its deliberate most likely due to political pressure. If inflation numbers are reported below the true rate who benefits most? The govt, theycan keep interest rates low so they can continue their unchecked largess with minimal financing costs. If they paid a real marketplace determined rate of interest there would be economic chaos.


I have never been contacted by government pollsters to inquire about the OER on the house I have owned for 17 years, but if they had at any time, I wouldn't have had a clue. My gut tells me I would have been way off.


The GDP Deflator is a much better measure of inflation, and avoids all these kinds of problems entirely.

Runner Dan
Runner Dan

The Fed's blindness to the housing bubble is intentional, as the inflated house prices helps make their insolvent banking system appear to be not so insolvent. The government doesn't mind helping out with the inflation process since they derive taxes from it. Higher house prices means more tax revenue and so these days the government is directly/indirectly involved with, I believe I read somewhere, 80% of all home purchases. Of course, this all is disguised as "helping people achieve the American dream". Really, this is just one of the three major fronts of the generational war whereby the older generation attempts to extract wealth from the younger. The other two fronts are higher education and healthcare.