U.S. Price Inflation Rate Far from Peaking

The U.S. price inflation rate based on the year-over-year (YOY) percentage change in the CPI-U is far from peaking. The S&P/Case-Shiller U.S. National Home Price Index increased by 19.5% in September on a YOY basis. This was down slightly from the S&P/Case-Shiller U.S. National Home Price Index increasing by 19.8% in August on a YOY basis. Although the actual YOY percentage change in the S&P/Case-Shiller U.S. National Home Price Index may have reached a short-term pre-hyperinflation peak in August, the way this gets accounted for in the CPI-U lags behind by 21 months.

The BLS calculates home price inflation through Owners' equivalent rent of residences (OER), which is the #1 most important category of the CPI-U with a 23.713% weighting. In August when the S&P/Case-Shiller U.S. National Home Price Index increased by an all-time high of 19.8% YOY, the OER increased by only 2.6% YOY. Since then, the YOY change in OER has increased to 2.9% in September, 3.1% in October, and 3.5% in November.

Let's compare November 2021 OER inflation of 3.5% to what the S&P/Case-Shiller U.S. National Home Price Index increased by 21 months earlier in February 2020. The S&P/Case-Shiller U.S. National Home Price Index increased by 4.3% YOY in February 2020, which is close to the latest OER inflation rate of 3.5%. The OER inflation rate is likely to continue increasing through May 2023 or 21 months after the August 2021 peak in the YOY percentage change of the S&P/Case-Shiller U.S. National Home Price Index.

Currently, the official U.S. price inflation rate of 6.8% is artificially below the actual rate of U.S. price inflation due to the OER and its flawed methodology. Seven months from now, OER will no longer drag down the official U.S. price inflation rate but will begin to lift it higher.