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  5. Disentangling Rent Index Differences: Data, Methods, and Scope

Disentangling Rent Index Differences: Data, Methods, and Scope

  • Brian Adams
  • Lara Loewenstein
  • Hugh Montag
  • Randal Verbrugge
American Economic Review: Insights (Forthcoming)

Abstract

Rent measurement determines 32 percent of the CPI. Accurate rent measurement is therefore essential for accurate inflation measurement, but the CPI rent index often differs from alternative rent inflation measures. Using repeat-rent inflation measures created from CPI microdata, we show that this discrepancy is largely explained by differences in rent growth for new tenants relative to all tenants. New tenant rent inflation provides information about future all-tenant rent inflation, but the use of new tenant rents is contraindicated in a cost-of-living index such as the CPI. Nevertheless, policymakers should integrate new tenant inflation into inflation forecasts and monetary policy decisions.

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