A Surprising Twist in the Bureau of Labor Statistics' CPI: The Owner's Equivalent of Rent (OER) Mystery
The Consumer Price Index (CPI) is a crucial economic indicator, but today's delayed release by the Bureau of Labor Statistics (BLS) revealed a peculiar anomaly. The Owner's Equivalent of Rent (OER), a significant component of CPI, played a surprising role in shaping the inflation narrative.
OER, which accounts for 26% of overall CPI, 33% of core CPI, and a staggering 44% of core services CPI, experienced a notable discrepancy. While the overall CPI rose by 0.31% in September, OER's contribution was a mere 0.13%, a significant departure from the previous month's 0.38%. This discrepancy had a notable impact on the month-to-month readings of CPI, core CPI, and core services CPI.
The author, Wolf Richter, highlights the potential consequences of this OER outlier. If OER hadn't been so low, inflation readings would have been much higher, especially in core services and core CPI. This is because OER indirectly reflects the costs of homeownership, including insurance, HOA fees, and property taxes, which are substantial.
But what exactly is OER? It's not a measure of rent; instead, it's a proxy for the costs associated with homeownership. The Rent CPI measures actual rent, while OER estimates what a group of homeowners believes their property would rent for, assuming they try to cover their increased costs by raising rent.
The impact of this OER discrepancy is particularly evident in core services CPI, which includes essential items like housing, medical care, insurance, and various subscriptions. With OER's significant influence on this category, a single outlier can distort the overall picture.
The author also delves into durable goods CPI, which dipped in September and decelerated year-over-year. The analysis provides a detailed breakdown of major durable goods categories, including new and used vehicles, household furnishings, and sporting goods.
Despite the OER outlier, the author concludes that further exploration of services inflation may not be meaningful at this stage. Instead, they plan to focus on food and energy inflation, which are expected to reveal interesting insights.
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