January’s inflation report came in hotter than expected, with the shelter category increasing 0.4%—up from 0.3% in recent months.
While the overall shelter inflation component of CPI did tick up to a monthly increase of 0.4% from 0.3%, the increase was due to “lodging away from home”—meaning hotel prices—which jumped to 1.4%.
The “lodging away from home” number is volatile: In the past three months it has ranged between -2.5% and January’s 1.4%.
Despite the volatility, the “lodging away from home” component makes up only 3.6% of the overall shelter category and 1.292% of the total CPI figure.
The more important rent of primary residence and owners’ equivalent rent categories—which include the rent that renters pay and homeowners could receive if they rented out their home instead of living in it—increased 0.3%, which is the same as increases in recent months.
It is also true that the rent measures in CPI remain elevated relative to market rent, which Redfin reports has been flat for two years. And that lag accounts for why inflation remains above the Fed’s target. But remember that the Fed is focused on a different metric of inflation, core PCE, for which shelter is only 16% of the total compared to 42% of the total for core CPI. And also remember that the Fed is carefully watching market rents, because they’re well aware of the lag.
Finally, while the hotel prices in shelter inflation drove much of the surprising inflation data today, a lot of it also came from categories like car insurance and used cars, which are volatile and subject to start-of-year price resets.
