Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s 4 Your Money time, and we’re joined by James Nelson, Financial Planner at NelsonCorp Wealth Management. Welcome back, James.
James Nelson:
Thanks for having me, Brandy.
Brandy Auterson-Hurst:
So the Fed has said shelter inflation is key to bringing overall inflation down. So what’s happening with housing inflation right now?
James Nelson:
Yeah, that’s right. Housing costs make up a huge part of inflation and the Fed’s watching that closely, and that’s the chart that I brought along today. And what we’re looking at here is the owner’s equivalent rent in the blue line, and then the overall CPI inflation in the red. And the owner’s equivalent rent is the way that the government measures housing inflation. It doesn’t track home prices directly, but instead estimates what homeowners would pay in rent for their own homes. Since it makes up about a third of the CPI formula, it has a big impact on inflation. So again, the blue line here, you can see in 2022 it peaked at 8.1%… Or actually, that was April of 2023, helping drive inflation higher. Since then though, it’s cooled off and it’s dropped to 4.6%.
So historically, when the owner’s equivalent rent starts falling, it tends to keep moving lower for a while. It’ll be interesting to see if that follows suit this go round, or if it does level off here for a period of time, maybe inflation stays a little bit stubbornly higher than we’d all like.
Brandy Auterson-Hurst:
Okay, so what does this mean for inflation and the Fed going forward?
James Nelson:
So the current trend suggests that inflation is still coming down, which is a good thing if that continues. The trend also suggests that the housing market has softened up a little bit, so that’s good or bad depending on what side of that you’re on. And then if the owner’s equivalent rent continues to decline, I think we could see a rate cut later this year.
Brandy Auterson-Hurst:
All right, James. Thanks for your insight today.
James Nelson:
Thanks, Brandy.
Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.