Two recent studies have concluded that for roughly four decades the measure of inflation for rents in the U.S. consumer price index was substantially underestimated. Why should this mismeasurement be of concern? In “Gimme Shelter! Rents Have Risen, Not Fallen, Since World War II,” Len Nakamura explains that rents are important in measuring the price of housing services for homeowners as well as renters. They are also the main standard against which market participants and others weigh the reasonableness of house prices. In addition, such mismeasurement affected the estimated rate of overall inflation faced by U.S. households during this historical episode.
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Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.