While there has been a deserved large focus on commodity prices and its impact on consumer price inflation, another factor for the CPI is about to turn upward too. That is the housing component. Owners Equivalent Rent makes up 24% of headline CPI and about 40% of core CPI. Using the comments from the two largest apartment REITs as anecdotal evidence, rents are moving higher. Equity Residential said base rents for new rentals will rise by 5% and rent renewals will be up 4-5% in 2011. Avalon Bay’s conference call doesn’t start until this afternoon so I don’t have their rental outlook for 2011 but they said Q4 rental rates were up 2.9%. To compare to recent rental trends in the CPI, OER in the Dec CPI report saw a gain of just .3% y/o/y.
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