Inflation has come down quite a bit in the U.S. and around the world, but prices in some areas continue to rise faster than normal. One important example is rents, which carry a large weight in the Consumer Price Index and have continued to increase at a pace far faster than what would have been considered normal before the pandemic. Some private estimates of rent inflation have been softening for a while as more multi-family housing units are built and “churn” in the labor market has subsided. Despite this, it takes a while for the official calculations of rent inflation to catch up. Readers may be surprised to learn that home prices do an excellent job of forecasting changes in rent inflation. As this graph shows, the slowdown in national home price appreciation in 2022 and 2023 can explain a lot of the fall we’ve seen in rent inflation and gives us confidence that trend will continue into this summer.

The Macro Week In Review

The Macro Week Ahead

1. Retail sales for December will give us our first picture of U.S. consumer demand heading into the end of last year. Data from December and January has been very choppy in recent years, but weekly data from Redbook showed a slow acceleration in the pace of retail sales growth in the fourth quarter.

2. Housing data is extremely interest rate sensitive, none more so than the National Association of Homebuilders Market Index, which remains in highly distressed territory even after bouncing moderately in December. Housing starts and building permits carry greater weight in the market, and data for December could show a jump in the latter based on the substantial drop in rates during the closing months of last year.

3. U.S. industrial output has been flat all year, in line with leading indicators like the ISM Manufacturing PMI. December’s data is not likely to show much of an increase.

Three Tweets From The Macro Institute

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