Economics Consumer Price Index Cpi Questions Medium
The Consumer Price Index (CPI) accounts for changes in housing costs through a component called "Owner's Equivalent Rent" (OER). OER is an estimate of the amount of rent that homeowners would have to pay if they were renting their homes. It measures the cost of housing services provided by owner-occupied housing units.
To calculate OER, the Bureau of Labor Statistics (BLS) surveys homeowners and asks them to estimate how much rent they would charge for their homes if they were rented. The BLS then uses these estimates to calculate an average rental value for owner-occupied housing units in different geographic areas.
The inclusion of OER in the CPI allows for the measurement of changes in housing costs over time. As the rental market fluctuates, the OER component of the CPI reflects these changes. If housing costs increase, the OER component will increase, leading to a higher CPI. Conversely, if housing costs decrease, the OER component will decrease, resulting in a lower CPI.
It is important to note that the CPI also includes other housing-related components, such as the cost of rent, utilities, and maintenance and repairs. These components further contribute to the overall measurement of changes in housing costs within the CPI.
Overall, the CPI accounts for changes in housing costs through the inclusion of the Owner's Equivalent Rent component, which reflects the rental value of owner-occupied housing units. This allows for the measurement of changes in housing costs over time and provides valuable information for understanding inflation and its impact on consumers.