Rising cost of rent raises fears concerning inflation

Bloomberg News / June 6, 2011

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WASHINGTON — For all the attention given to almost $4-a-gallon gas, the biggest threat to containing inflation may be the shift away from homeownership, which is pushing up the cost of leases across the nation’s 38 million rented residences.

Excluding food and energy, shelter represents about 40 percent of the consumer price index, and accounted for almost one-quarter of the 1.3-percentage-point rise in April. That share has grown as falling home prices shake Americans’ confidence in housing as an investment.

Ben Bernanke, the Federal Reserve chairman, and his colleagues say they will hold interest rates at record lows for an “extended period,’’ based on an assessment that slack in the economy from 9 percent unemployment will help subdue core inflation and any threat of accelerating prices probably will be “transitory.’’ Not everyone agrees with that judgment.

“They should have looked at rents,’’ said Maury Harris, chief US economist in New York at UBS Securities, whose team at UBS was the most accurate inflation forecaster over 2009 and 2010, according to Bloomberg calculations. “They’re putting too much weight on the ‘slack is all that matters’ theory.’’

Housing has become “a contributor to inflation, and it continues to rise,’’ agreed Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, with $22 billion in assets under management. McCain estimates that rents have accounted for about 1 percentage point of the last decade’s 2.4-percentage-point rise in prices.