Working Paper: NBER ID: w29795
Authors: Marijn A. Bolhuis; Judd N.L. Cramer; Lawrence H. Summers
Abstract: We study how the recent run-up in housing and rental prices affects the outlook for inflation in the United States. Housing held down overall inflation in 2021. Despite record growth in private market-based measures of home prices and rents, government measured residential services inflation was only four percent for the twelve months ending in January 2022. After explaining the mechanical cause for this divergence, we estimate that, if past relationships hold, the residential inflation components of the CPI and PCE are likely to move close to seven percent during 2022. These findings imply that housing will make a significant contribution to overall inflation in 2022, ranging from one percentage point for headline PCE to 2.6 percentage points for core CPI. We expect residential inflation to remain elevated in 2023.
Keywords: Residential Inflation; Housing Prices; Inflation Outlook
JEL Codes: E01; E31; E37; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing inflation (R31) | overall inflation (E31) |
| housing inflation (R31) | residential inflation components of CPI and PCE (E31) |
| past relationships hold (J12) | housing inflation (R31) |