Q&A: What can rent prices reveal about inflation and the economy?
Tracking rent prices may help businesses and policymakers understand where inflation is headed months in advance of government inflation reports, according to researchers at Penn State's Smeal College of Business who developed the Penn State/ACY Alternative Inflation Index. The Penn State index was recently incorporated into the Bloomberg Terminal, a software system that serves financial…
Rent prices can provide valuable insights into inflation and the economy, according to researchers at Penn State's Smeal College of Business. Their Penn State/ACY Alternative Inflation Index tracks marginal rent - the rates charged to lease new housing units at current market rates - to measure inflation. This differs from the Consumer Price Index (CPI) used by the government, which relies on renewal rental rates from long-term tenants.
The Penn State index captures market conditions more vividly than the government's method, as it includes both renewal long-term tenants and new tenants. The average change in this marginal rent change provides significant complementary information about general inflation in the economy, adding to the official public inflation measures.
Additionally, the index continues publishing during government shutdowns, unlike the BLS, which stops producing inflation measures. The researchers believe that incorporating alternative inflation indices, like their alternative, can help businesses and policymakers better understand inflation trends and make informed decisions for future economic needs.
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