Tuesday, September 17, 2013

Rents rising faster than inflation; could hurt seniors

The cost of primary residence rentals has risen by 3% on a year-over-year basis last month. That's roughly double the headline CPI increase from a year ago. The culprit is some combination of higher rates, a cultural shift toward renting (see post), and insufficient growth in the supply of rental properties nationally.

Source: BLS

If continued, this trend could be particularly difficult on seniors who rely on Social Security payments for income. These payments are linked to the CPI measure, and the headline inflation divergence from the increasing cost of rent could become an issue over time. And the so-called "chained CPI" proposal is likely to make Social Security payments rise even slower (see story).

For many elderly Americans, rent represents a large component of their total expenditures. On the other hand, seniors, who rely on a different "basket" of goods and services than the general population, are less likely to benefit significantly from some components of the CPI for which prices are falling. "Personal computers and peripheral equipment" category, which shows a steady price decline, is one example. It is important to track how some vulnerable groups are impacted by what the economists consider "benign" inflation conditions.

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