America’s rental-market mystery

During the past few years of inflation, sceptics have insisted that governments are undercounting price rises—usually without much evidence to support their claims. But a new controversy in American economics has highlighted the challenge of accurately measuring prices. Only this time the implication points in the opposite direction, suggesting that inflation may prove a more stubborn foe.

At issue is the manner in which housing fits into the consumer-price index. To the surprise of many casual observers, statisticians typically do not include property prices in their inflation gauges since they view housing as an investment good, perhaps a once-in-a-lifetime purchase for homebuyers. However, statisticians do know that housing is a big part of personal budgets and want to track regular changes in the price of shelter, much as they do for other consumer products. So instead of measuring property prices outright, their inflation indices factor in how much people pay for rent—or would pay for rent if they leased their own homes. The latter is known as owners’ equivalent rent (OER).