Evelyn Reynolds

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    Inside the Rent Inflation Measure That Economics Nerds Love to Hate

    There’s a three-letter abbreviation that economists have started pronouncing with the energy of a four-letter word: “O.E.R.”It stands for owner’s equivalent rent, and it has been used to measure American housing inflation since the 1980s. As its name suggests, it uses a combination of surveys and market data to estimate how much it would cost homeowners to rent the house they live in.But three years into America’s price pop, it has become almost cliché for economists to hate on the housing measure. Detractors blast if for being so slow-moving that it does not reflect up-to-date conditions in the economy. Critics argue that it uses convoluted statistical methods that make little sense. The most intense haters insist that it is giving a false impression about where inflation stands.“It’s just not adding anything to our understanding of inflation,” said Mark Zandi, chief economist of Moody’s Analytics and a frequent adviser to the Biden administration. Full disclosure: The New York Times called Mr. Zandi for this article because he has been one of the many economists grousing about O.E.R. on social media. He said he was “not a fan.”What has this one nerdy inflation component done to earn so much vitriol?It is preventing an economic happy ending, more or less. Housing inflation measures have been surprisingly sticky over the past year, and they are now a major barrier keeping price increases overall from returning to normal. That has knock-on effects: Because of inflation’s staying power, the Federal Reserve is keeping interest rates at a more than two-decade high to try to wrestle prices under control by slowing the economy.But while there’s no denying that O.E.R. has become a main character in America’s inflationary tale, not everyone thinks it is the bad guy. Some economists think it is a valid and reasonable way to measure an important part of the consumer experience. Ahead of a fresh Consumer Price Index report set for release on Wednesday morning, there are a few key facts to understand about how housing inflation is calculated, what it means and what it might do next.Housing Inflation Remains Stubbornly HighEconomists had expected two measures of rental inflation to fade in 2023 and 2024, but that process is taking time to play out.

    Note: Inflation measures are shown as rates of annual change.Source: The Bureau of Labor StatisticsBy The New York TimesConsumer Price Index Inflation Remains HotterThe Consumer Price Index is climbing faster than the Personal Consumption Expenditures index, in large part because it weights housing more heavily.

    Note: Indexes are shown as annual change.Sources: Bureau of Labor Statistics and Commerce DepartmentBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Few Chinese Electric Cars Are Sold in U.S., but Industry Fears a Flood

    Automakers in the United States and their supporters welcomed President Biden’s tariffs, saying they would protect domestic manufacturing and jobs from cheap Chinese vehicles.The Biden administration’s new tariffs on Chinese electric vehicles won’t have a huge immediate impact on American consumers or the car market because very few such cars are sold in the United States.But the decision reflects deep concern within the American automotive industry, which has grown increasingly worried about China’s ability to churn out cheap electric vehicles. American automakers welcomed the decision by the Biden administration on Tuesday to impose a 100 percent tariff on electric vehicles from China, saying those vehicles would undercut billions of dollars of investment in electric vehicle and battery factories in the United States.“Today’s announcement is a necessary response to combat the Chinese government’s unfair trade practices that endanger the future of our auto industry,” Senator Gary Peters, a Michigan Democrat, said in a statement. “It will help level the playing field, keep our auto industry competitive and support good-paying, union jobs here at home.”On Tuesday, President Biden announced a series of new and increased tariffs on certain Chinese-made goods, including a 25 percent duty on steel and aluminum and 50 percent levies on semiconductors and solar panels. The tariff on electric vehicles made in China was quadrupled from 25 percent. Chinese lithium-ion batteries for electric cars will now face a 25 percent tariff, up from 7.5 percent.The United States imports only a few makes — electric or gasoline — from China. One is the Polestar 2, an electric vehicle made in China by a Swedish automaker in which the Chinese company Zhejiang Geely has a controlling stake. In a statement, Polestar said it was evaluating the impact of Mr. Biden’s announcement.“We believe that free trade is essential to speed up the transition to more sustainable mobility through increased E.V. adoption,” the company said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Here’s everything to expect from Wednesday’s key report on inflation

    Prices for all items in April are projected to show a 0.4% gain on the month, the same as in March, though the annual rate is expected to edge lower to 3.4%.
    On the important core measure that excludes food and energy, the respective projections are 0.3%, lower than March’s 0.4% reading, and 3.6%, down from 3.8%.
    Wall Street will pore through Wednesday’s report looking for signs of how much longer the elevated inflation conditions will continue. One key focus will be on housing.

    People shop in the food section of a retail store in Rosemead, California, Jan. 19, 2024.
    Frederic J. Brown | AFP | Getty Images

    Inflation trends may have gotten a little less dreary in April, though they are still likely to keep the Federal Reserve uncomfortable enough to stay on pause with interest rates.
    The consumer price index, a broad measure of the cost of goods and services in the marketplace, is expected to show another increase for the month, though the annual inflation rate is projected to come down slightly, according to Dow Jones consensus forecasts.

    Prices for all items are projected to show a 0.4% gain on the month, the same as in March, though the annual rate is expected to edge lower to 3.4%, compared to the 3.5% reading in the previous month. On the important core measure that excludes food and energy, the respective projections are 0.3%, lower than March’s 0.4% gain, and 3.6%, which is down from 3.8%.
    In remarks made Tuesday in Amsterdam, Fed Chair Jerome Powell expressed hope that inflation would decelerate through the year but acknowledged the slow progress and provided further direction that rates aren’t likely to move anytime soon.
    “I expect that inflation will move back down on a monthly basis to levels that were more like the lower readings we were having last year,” he told attendees at a banking conference. “I would say my confidence in that is not as high as it was, having seen these readings in the first three months of the year. So we’re just going to have to see where the inflation data fall out.”

    Wholesale gauge brings bad news

    Keeping with the higher-than-expected readings in the first quarter, the producer price index rose 0.5% in April, nearly double the expectation to kick off the second quarter on a sour note. The index, a proxy for wholesale prices, accelerated 2.2% on an annual basis, the highest reading in a year.
    It also heightened the importance of Wednesday’s CPI release. The Labor Department’s Bureau of Labor Statistics will provide the data at 8:30 a.m. ET.

    “This will be the most important read of the month [excluding nonfarm payrolls] as inflation continues to defy expectations,” said Dan North, senior economist at Allianz Trade North America. Even if the report comes in around consensus expectations, it will be “inadequate progress for the Fed to consider a cut until September,” he added.
    Indeed, financial markets have given up hope on an accommodative Fed, reducing expectations from the start of the year of at least six rate cuts now down to two, with the first one unlikely to come before the September meeting.
    Stocks, though, have been resilient in the face of a tighter Fed, with the focus instead turning to solid corporate earnings and economic growth.

    Focus on housing

    Wall Street will pore through the CPI report looking for signs of how much longer the elevated inflation conditions will continue. Sentiment surveys in recent days have shown that consumer expectations for inflation have risen, which the Fed considers key in taming price pressures.
    One crucial focus Wednesday will be on housing, as shelter-related costs comprise about one-third of the weighting in the CPI. Fed officials have been banking on easing pressures in the rental market as a sign that the strong disinflation present during 2023 would appear again this year, but have so far been thwarted.
    “The slower it comes down, the longer the path towards the Fed’s inflation target,” said Erica Groshen, senior economist at Cornell’s School of Industrial and Labor Relations and a former senior official with both the BLS and New York Fed. “We’re not seeing any big shifts in the housing market that would make me think it’s just now going to act differently. Demographics are slow to change. So I don’t really see an explanation for housing to react very differently than it has in the past.”
    The key component of shelter costs is called owners’ equivalent rent, a hypothetical measure of what owners think they can get to rent their homes. It rose 5.9% annually in March, down from a peak of above 8% in April 2023 but still well above a level consistent with 2% overall inflation.
    While Fed officials had been willing to look through housing costs when considering policy, continued stickiness in prices could change that. Central bankers had even come up with a separate measure known as “super core” that looked at services costs excluding food, energy and housing services, but that may not be as relevant now.
    “It’s very important for the Fed not to be behind the curve on this,” Groshen said. “So I think it will make the Fed more cautious about lowering rates. I don’t think this would be enough for them to raise rates, but it probably will feed caution on their part.”

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    Fed Chair’s Confidence in Slowing Inflation Is ‘Not as High’ as Before

    Jerome H. Powell, the Federal Reserve chair, said the central bank was poised to leave interest rates on hold after surprisingly stubborn inflation.Jerome H. Powell, the Federal Reserve chair, reiterated Tuesday that policymakers were poised to hold interest rates steady at a high level as they waited for evidence that inflation is slowing further.Fed officials entered 2024 expecting to make interest rate cuts, having lifted borrowing costs sharply to a more than two-decade high of 5.3 percent between 2022 and the middle of last year. But stubbornly rapid inflation in recent months has upended that plan.Central bankers have been clear that rate cuts this year are still possible, but they have also signaled that they are planning to leave interest rates on hold for now as they wait to make sure that inflation is genuinely coming under control.Speaking during a panel discussion in Amsterdam, Mr. Powell said officials had been surprised by recent inflation readings. The Consumer Price Index inflation measure, which is set for release on Wednesday, came down rapidly in 2023 but has gotten stuck above 3 percent this year. The Fed’s preferred measure, the Personal Consumption Expenditures index, is slightly cooler, but it, too, remains well above the Fed’s 2 percent inflation goal.“We did not expect this to be a smooth road, but these were higher than I think anybody expected,” Mr. Powell said on Tuesday of recent inflation readings. “What that has told us is that we will need to be patient and let restrictive policy do its work.”Mr. Powell said that he expected continued growth and a strong labor market in the months ahead, and that he believed inflation would begin to slow again.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Wholesale prices rose 0.5% in April, more than expected

    The producer price index, a measure of what producers receive for the goods they produce, increased 0.5% in April and was up 2.2% on a 12-month basis, the biggest gain in a year.
    Core PPI also increased 0.5% compared to the 0.2% Dow Jones estimate.
    Services prices boosted the wholesale inflation reading, rising 0.6% and accounting for about three-quarters of the headline gain.

    Wholesale prices jumped more than expected in April, putting up another potential roadblock to interest rate cuts anytime soon.
    The producer price index, a measure of what producers receive for the goods they produce, increased 0.5% for the month, higher than the 0.3% Dow Jones estimate, the Labor Department’s Bureau of Labor Statistics reported Tuesday. However, the March reading was revised from an initially reported 0.2% gain to a decline of 0.1%.

    Stripping out volatile food and energy prices, core PPI also increased 0.5% compared to the 0.2% Dow Jones estimate. Excluding trade services from that core group showed a 0.4% increase on the month and 3.1% on a 12-month basis, the highest level since April 2023.
    On a year-over-year basis, wholesale inflation rose 2.2%, also the highest in a year. Core PPI inflation was at 2.4%, the biggest annual move since August 2023. Both numbers were in line with estimates from Reuters.
    Stock market futures were around breakeven following the data while Treasury yields were mixed.
    “Sticky inflation looked downright stuck this morning after a much hotter-than-expected inflation reading. But with last month’s numbers revised lower, this report may not have been as much of an upside shock as it first appeared to be,” said Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley.
    Services prices boosted the wholesale inflation reading, rising 0.6% and accounting for about three-quarters of the headline gain, while the final demand goods index increased 0.4%. The services increase was the biggest monthly gain since July 2023, the BLS reported.

    Portfolio management in turn helped drive the services costs, rising 3.9% on the month.
    Goods prices as measured by the PPI rose 0.4%, reversing a 0.2% decline, fed by a 2% increase in the energy index, which included a 5.4% surge in gasoline prices. The final demand index for food fell 0.7%.
    The latest inflation data comes with the Federal Reserve on extended hold regarding interest rates. Policymakers have said in recent days that they expect inflation to trend lower through the year but need more evidence that it is convincingly on the way back to the central bank’s 2% goal before cutting rates.
    Recent data points have not been encouraging.
    The consumer price index, the companion to the PPI that measures what consumers pay rather than that producers receive, has shown higher than expected gains through the first part of 2024, fueling fears that inflation is stickier than economists and policymakers had expected.
    Similarly, the Fed’s preferred measure, the Commerce Department’s personal consumption expenditures price index, also has been running hot and showing inflation running just shy of 3%.
    All of the various inflation measures are showing price pressures well ahead of the Fed’s target.
    In addition, various consumer surveys have shown expectations running hot. The New York Fed’s monthly survey released Monday showed the one-year inflation outlook at 3.3%, the highest since November, pushed in good part by expectations that housing-related costs will continue to increase. More

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    High Interest Rates Are Hitting Poorer Americans the Hardest

    The economy as a whole has proved resilient amid the highest rates in decades. But beneath the surface, many low- and moderate-income families are struggling.High interest rates haven’t crashed the financial system, set off a wave of bankruptcies or caused the recession that many economists feared.But for millions of low- and moderate-income families, high rates are taking a toll.More Americans are falling behind on payments on credit card and auto loans, even as many are taking on more debt than ever before. Monthly interest expenses have soared since the Federal Reserve began raising interest rates two years ago. For families already strained by high prices, dwindling savings and slowing wage growth, increased borrowing costs are pushing them closer to the financial edge.“It’s crazy,” said Ora Dorsey, a 43-year-old Army veteran in Clarksville, Tenn. “It does make it hard to get out of debt. It seems like you’re only paying the interest.”Ms. Dorsey has been working for years to chip away at the debts she accrued when a series of health issues left her temporarily out of work. Now she is juggling three jobs to try to pay off thousands of dollars in credit card balances and other debts. She is making progress, but high rates aren’t helping.“How am I supposed to retire?” she asked. “I’m not able to save, have that rainy-day fund, because I’m trying to take down the debt that I have.”Ms. Dorsey isn’t likely to get relief soon. Fed officials have indicated that they expect to keep interest rates at their current level, the highest in decades, for months. And while policymakers still say they are likely to cut rates eventually, assuming inflation slows down as expected, they could consider raising them further if prices begin rising faster again. The latest evidence will come on Wednesday when the Labor Department releases data showing whether inflation cooled in April, or remained uncomfortably hot for a fourth straight month.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    What Forecasters Say About Interest Rates (and Why They Disagree)

    Hopes for a steep drop in borrowing costs for consumers and businesses have been dashed. But some experts predict modest reductions in coming months.How soon is soon? Or exactly how much later is later?As the year started, there was a widespread view among economists and on Wall Street that the Federal Reserve would lower interest rates in the first half of the year. Maybe in March, maybe in May, but sooner rather than later.That long-awaited moment, two years after the Fed began ratcheting up rates to their highest level in decades, held the prospect of brightening consumer sentiment, increasing company valuations and improving corporate financing opportunities. It was called “the pivot party,” and everyone was invited.But three months of hotter-than-expected inflation data followed. Financial markets then projected that the Fed would lower rates once, near the end of the year, or not at all — based on a view that the central bank will see little merit in such a move as long as inflation remains a bit elevated and employment is growing.Interest rates for home and car loans tilted up again. And it seems the pivot party has been canceled. But some experts argue that it has only been postponed, leaving forecasters divided about what the rest of the year will bring.Camp 1: Inflation Is Coming Under ControlSome market analysts and bank economists are making the case that rate cuts are still on the table. The April jobs report, which implied a cooling labor market and softer wage growth, gave them some fodder.These analysts generally contend that current measures of inflation are overstated because of lagging indicators, reflecting cost pressures from over a year ago, that will ebb in summer. And they believe that while the diffuse process of stabilizing prices, formally called disinflation, may face setbacks (especially any oil shock), it is on track.After a wild ride, inflation has dropped back to lower levels, according to the Fed’s preferred measure.The annual percent change in the Personal Consumption Expenditures price index

    Source: U.S. Bureau of Economic Analysis By The New York TimesA measure of U.S. inflation that excludes an estimate of homeownership costs suggests that price increases are less rapid.The annual percentage change in the Consumer Price Index compared with the change in the Harmonized Index of Consumer Prices. H.I.C.P. is an inflation measure commonly used in other countries that excludes “owners’ equivalent rent,” an estimate of how much it may cost homeowners to rent a similar home.

    Source: Eurostat and Bureau of Labor StatisticsBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Inflation outlook rises, fueled by expected increases for housing costs, New York Fed survey shows

    The inflation outlook increased across the one- and five-year horizons as respondents expressed little confidence the Fed will reach its 2% goal soon, a New York Federal Reserve survey showed.
    Respondents to the central bank survey indicated they expect median home price growth of 3.3% over the next year, the highest reading since July 2022.
    College education costs are expected to increase by 9%, a 2.5 percentage point monthly surge.

    Consumers in April raised their expectations for price increases both in the near and longer term, fueled by higher inflation in home prices along with fuel and energy, according to a New York Federal Reserve survey released Monday.
    The central bank’s New York district reported in its monthly Survey of Consumer Expectations that the outlook increased across the one- and five-year horizons as respondents expressed little confidence the Fed will reach its 2% inflation goal anytime soon.

    On a one-year basis, the expectation increased to 3.3%, up 0.3 percentage point from March and the highest since November 2023. For the five-year outlook, the expectation rose to 2.8%, up 0.2 percentage point. However, at the three-year horizon, the outlook fell to 2.8%, down 0.1 percentage point.
    The results mirror the University of Michigan sentiment survey released Friday that showed the one-year outlook for May at 3.5%, also up 0.3 percentage point, while the five-year outlook nudged higher to 3.1%.

    CNBC news on inflation

    All of the readings are well ahead of the Fed’s 2% goal and reflective of the stubborn nature of inflation this year after a substantial disinflationary trend in 2023.
    Inflation pressures are expected to come from a wide variety of sources. However, expected increases in housing prices are particularly troublesome for policymakers who expected shelter costs to ease this year.
    Respondents to the survey indicated they expect median home price growth of 3.3% over the next year, up 0.3 percentage point from a level that had remained steady for seven months. That was also the highest reading since July 2022 and boosted by those with a high school degree or less, a lower-income cohort of particular worry to Fed officials during a period of surging inflation that took off in early 2022.

    Along with expected higher home costs, respondents see rents rising 9.1%, up 0.4 percentage point from the prior month.
    Fed officials at their most recent meeting again held the line on rates and said they need to see more compelling evidence that inflation is moving back to the 2% goal before cutting.
    Policymakers “continue to look for additional evidence that inflation is going to return to our 2% target, and until we have that I think it is appropriate to keep the policy rate in restrictive territory,” Fed Vice Chair Philip Jefferson said Monday.
    Consumers see medical care rising 8.7% over the next year, up 0.6 percentage point from the March survey. They expect food prices to increase 5.3% (up 0.2 percentage point from a month ago), gasoline to rise 4.8% (up 0.3 percentage point) and college education to climb by 9%, a 2.5 percentage point surge.
    Employment expectations in the survey were mixed, with unemployment seen rising though the perceived probability of losing one’s job declined. However, the mobility outlook decreased, with 50.9% expecting to find a job quickly after losing their current job, the lowest reading since April 2021.
    The survey comes two days ahead of the closely watched Labor Department report on the consumer price index, due to be released Wednesday. Economists surveyed by Dow Jones expect the all-items CPI to show a 3.4% increase for April from the prior year, down 0.1 percentage point from March. Core inflation, excluding food and energy, is projected to run at a 3.6% 12-month rate.

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