Wednesday, April 21, 2021

"Rent inflation is going to drive shelter inflation higher by the end of the summer."

From Upfina, April 15 (following the CPI release Apr. 14): 

....Core Inflation Was Low Due To Rent

Now let’s look at the low core inflation rate. Core commodities inflation was 1.7% and core services inflation was 1.6%. There was nothing new in the commodities category. Used car and truck inflation was 9.4%. The comps are about to get very tough which should lower yearly growth. However, there is still a shortage of used vehicles. Public transit usage hasn’t gone back to normal. We have yet to see a spike in supply due to people selling their vehicles because their habits are going back to normal. Maybe people won’t use public transport as much as they did before the pandemic. That’s terrible for the environment. Public transportation is much greener than electric vehicles.

Within the services category, medical care services inflation was 2.7%. We are about to see a spike in elective procedures now that the risk of catching the virus has diminished substantially. The 7 day moving average of deaths in America has fallen to 747. On the negative side, the latest wave in Michigan hasn’t abated yet. Look for that to abate within the next few weeks as more people get vaccinated. Shelter inflation was just 1.7%. Core inflation will never get to above 2% without shelter inflation getting above 2%.

The chart above isn’t from the CPI report, but it shows a key point about rents. If a landlord is unsure of whether they’re able to collect rent, it goes to zero. This uncertainty increases with eviction bans in place. As you can see, asking rents have exploded, but effective rents have fallen. Look for the trend in effective rents to reverse within the next few months. Rent inflation is going to drive shelter inflation higher by the end of the summer.

There is no reason people won’t be able to pay their rent once all the leisure and hospitality jobs come back. There should be even more job creation in April. The current federal eviction moratorium ends on June 30th. It’s hard to see that being extended much longer with the pandemic near its close. 30.5% of Americans have been vaccinated. We are 3 months from 75% of the country being vaccinated (assuming that many want to be vaccinated)....


I still have trouble understanding how the Centers for Disease Control could mandate an eviction moratorium but they did.