Do Rising Home Prices Mean Higher Inflation?

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The Case Shiller 20-city house price Index is up 19.1% year-over-year. The only period with a comparable increase was in 2005 when it rose 14.9%.

Per Apartment List's August update: “Since January 2021, the national median rent has increased by a staggering 13.8%.”

With a 30% contribution to CPI, shelter prices are prone to boost CPI higher in the months ahead.

It seems like a logical conclusion, but is it?

The answer has far-reaching implications for investors. If inflation continues to rise from its elevated levels, the Fed will be under increasing internal and external pressure to taper QE and raise interest rates. For a market ginned up on Fed liquidity, that is the last thing investors want to see.

Let's explore our question and try to answer it.

Consumer Price Index (CPI) – Shelter

The Bureau of Labor Statistics (BLS) category of shelter is broken down into owners' equivalent rent (OER) at 23% and rent of primary residency at 7%.