We don’t need to worry about 1970s-style rent inflation. That kind of inflation couldn’t happen today because the shelter inflation growth rate has been cooling off already, and we have seen this in more real-time data.
Also, we have over 900,000 apartment units coming on line soon, and the best way to defeat inflation is with more supply. If you try to beat inflation by destroying demand, that is only a short-term fix. This is excellent news for mortgage rates, since falling rent inflation makes a better case for mortgage rates falling in the next year than rising.
In September on CNBC I talked about how the positive story for 2023 would be apparent by the start of the year: that the inflation growth rate was going to cool down, driven by shelter inflation. The inflation data lags, so I knew it would take time, but it happened.
The massive inflation and double-digit mortgage rates of the 1970s and early 1980s seem to haunt the Federal Reserve, which wants to cool the economy and even provoke a job-loss recession to avoid that scenario.
But the latest Consumer Price Index inflation report shows how the fear of 1970s-style inflation is wildly overblown. Today’s numbers don’t look like the 1970s at all, when rent, wages, and oil shocks sent inflation running hotter than anything we have seen in recent modern-day history.
Shelter inflation had a details ⇒
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