Housing Costs Drive a Wedge Between Fed’s and Popular Inflation Metrics

The discrepancy between the Federal Reserve’s favored inflation metric, the Core Personal Consumption Expenditures (PCE) index, and the more commonly followed Consumer Price Index (CPI) has reached one percentage point difference, largely due to divergent approaches in calculating housing costs. This gap widens to 1.5 percentage points when focusing solely on shelter expenses, although this is partially balanced out by other factors. A recent analysis by Wells Fargo’s economists, Sarah House and Aubrey George, delves into these variances, highlighting the significant impact of how shelter costs are factored into these crucial economic indicators.