Services inflation is picking up in the US, but there are good reasons to believe that even this is understated. The much-anticipated tumble in shelter CPI inflation has yet to materialise. The ‘new tenant rent’ index (NTRI), published by the BLS, had shown a steep decline of 4.74% y/y in Q4 2023, when first published on January 16th. But this index is prone to large revisions. The latest data were published on April 17th: the y/y for Q4 2023 was revised from -4.74% to +0.85%. The steep drop in Q4, which garnered a lot of attention, including from policymakers, has been revised out.
New tenants now comprise a smaller share of the sample of rental units surveyed by the BLS. While growth rates for asking rents have slowed, renewal rents are proving much more stubborn. This explains part of the discrepancy between the ‘new tenant rent’ (+0.42% y/y) and the ‘all tenant regressed rent’ (+5.35% y/y) indices published by the BLS. The focus on apartment rents has also obscured much stronger growth rates for single-family rents. According to CoreLogic, US single-family rents rose by 3.4% y/y in February, the strongest growth rate in 10 months. The y/y for the Zillow Observed Rent Index (ZORI) for single-family residences firmed to 4.9% at the end of Q1. Asking rents appear to have bottomed: the disinflationary impact of shelter on core inflation will be limited.
Homeowners’ insurance premiums continue to climb, but the CPI is understating the true inflation rate for this component, because it focusses on renters’ insurance. Early weather forecasts predict a devastating hurricane season, which would cause further premium increases in 2025. Insurance markets are unravelling in states with the highest climate risk. In Florida, traditional insurers are exiting, with new, lower quality insurers entering to fill the gap. These new insurers still manage to secure favourable ratings, from emerging rating agencies. As a result, GSEs bear a larger share of insurance counterparty risk.
