The thing to keep in mind is: This is exactly what the Federal Reserve wants.
What it has been working toward for years.
Greatly facilitated by fiscal policy.
From FT Alphaville:
No shelter for the Fed
When it comes to US inflation, there are problems in the pipeline that have nothing to do with things that come down pipelines.
Nick Mazing is head of research at financial intelligence platform Sentieo. In this post, he explains why the CPI for shelter is set to add to the problems facing Federal Reserve chair Jay Powell.
When the Federal Reserve’s monetary policymakers sit down later this week to discuss how to tackle the surge in US inflation, the recent moves in the price of energy will feature prominently. That’s clearly important. The invasion of Ukraine has triggered a fresh surge in shiny rocks, black goo and air you burn. To boot, Americans care more than most what they pay at the pump — it is a nation built around the automobile.
But the Fed’s travails don’t begin and end with what’s happening to gas prices. In the coming quarters, officials are set to face price pressures from another essential item for consumers: housing. The housing component of the Consumer Price Index, or CPI, accounts for just over 42 per cent of the weight of goods and services in the “inflation basket” used to calculate the rate of change in prices in the US. That’s a far higher portion than energy.
Shelter, specifically, is over 33 per cent of the basket. Breaking it down further, rent of primary residence is 7.862 per cent and owners’ equivalent rent is 24.263 per cent.So what’s happening to housing costs right now?
The measures of consumer price inflation that the Fed relies upon are already at multi-decade highs. The reading for shelter currently comes in at 4.7 per cent — much higher than monetary policymakers might like. Yet even that figure underestimates what’s actually happening in the housing market....
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