Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation.
Our analysis, however, suggests that these higher shelter prices are likely to soon show up more clearly in the monthly CPI, potentially adding several more basis points (hundredths of a percentage point) to monthly inflation than they do now.
If you own your house, your cost did not go up. Most Americans own their homes. That's how to look at it. The inflation has likely been a net good for you if housing costs in your area have increased.
As part of the market, your opportunity costs go up. Meaning you need a higher sale price to offset a higher buying price if you want to move.
Or that locking in that current cost means less inventory on the market.
Housing costs going up across the board is only good if you have a surplus of inventory to sell that doesn’t need immediate replacement. Ie, not your primary home.
People owning only their primary residence are at best breaking even, despite amortizing their (cheaper) purchase price beyond a market increase.
This ignores the linkage to compensation. Broad inflation leads to people earning more. So if you own your home, you break even on the home (ignoring the downstream effect of having more home equity for your heirs).
But you can reasonably expect to be paid more in 2022/2023 than you would have been in those years had inflation stayed on the 2019 trend line. That will, in turn, make it easier for you to pay your mortgage and increase savings. You essentially get a raise to cover the fact that other peoples' housing costs increased*. That's the crux of the benefit.
* yes, some of your expenses increased as well, but the wage increases you receive need to cover the increase in those expenses PLUS housing expenses because market compensation increases for broad categories of workers, not for your specific household budget. So you still get "for free" the housing-linked part of the inflation adjustments to compensation.
As the value of your home goes up, your 'rent' goes up in the form of increased property taxes and depreciation becoming more expensive on the improved land and structures residing on top of the land.
This may seem invisible to you now, but as assesors re-assess your house, you realize how much more you are paying in 'rent' (maintenance) on your house for materials like wood and labor, or you're forced to sell at depreciated value because in 50 years you end up the old folks home or whatever -- sooner or later we all pay rent on the property we own. Basically 'using up' your house is getting more expensive in terms of opportunity cost.
My housing expense is flat. I own my home, and my housing expense will be predictable (and relatively capped) for as long as that is the case. So yes, my housing cost has been flat.
Yes, the plumber will charge me more. No, you would not be able to determine that if you had my financial records, because I don't spend an appreciable fraction of my income on plumbers (or lawn care, or electricians, or other home services outside of child care).
The same applies to electricity and gas; the expenses are there, but a 10% rise in all of my utilities is still not meaningful in my overall budget. For comparison, I can easily see a 10% swing in annual heating bills based solely on the average temperature during 3 months of the year.
Yes, I am impacted by all the same things you are. But my health insurance expense dropped 3% and that dwarfs all the other category increases. This is why the BLS weighs their basket.
I understood the point entirely, and you are correct that if inflation continues at this rate for decades, what today are small expenses like lawn care will eventually become the dominant term, eclipsing my mortgage. But I would wager we will have bigger problems should that eventuality come to pass.
Also, don't forget that increased inflation also eventually leads to everyone's compensation increasing. As I am in "everyone"," it will net out. If inflation moderates over the next few quarters/years, the likely impact to me is that I will earn more and so my largest expense (which is fixed!) will be proportionally smaller. But yes, I will pay more for plumbers and the like so I will be impacted by the cycle.
Our analysis, however, suggests that these higher shelter prices are likely to soon show up more clearly in the monthly CPI, potentially adding several more basis points (hundredths of a percentage point) to monthly inflation than they do now.
https://www.whitehouse.gov/cea/written-materials/2021/09/09/...