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US OUTLOOK/OPINION: Analysts Expect Large Reversal Of Primary Rents Jump

US OUTLOOK/OPINION
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  • Rent inflation was much stronger than expected back in July as primary rents in particular surged 0.49% M/M vs analysts clustered around a ‘mid-to-high’ rounded 0.3% reading.
  • Primary rents inflation has been volatile in recent months, with that 0.49 in July after 0.26 in June, following what was a relatively consistent 0.40% averaged through Jan-May.
  • The 0.30% broadly expected this month likely incorporates some reversal of a particularly strong increase in primary rents in the West although as we showed in last month’s MNI Inflation Insight this could also have been seen as payback for what had been soft monthly increases relative to other major regions.
  • If realized, a 0.30% M/M print would likely be seen as continuation of a bumpy but moderating trend in rental inflation, although we feel risks of a surprise are skewed to the upside this month.
  • Putting these monthly rates into context and the progress that the FOMC needs to see, weighted OER and primary inflation saw a weighted average of 0.27% M/M pre-pandemic. We have only had one month meet that rate over recent years (June, with 0.27% as well). It re-accelerated to 0.39% M/M although the 0.30% broadly expected for August would come close to this.
  • Experimental data from the BLS’s New Tenants Rent index has slowed to -1.1% Y/Y for Q2 but we again stress it is particularly prone to revisions and latest quarters have tended to be revised up (Q1 is currently seen at 2.3% vs its first released 0.4%, Q4 is currently seen at 2.8% vs 0.9% and before that -4.7%).  
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  • Rent inflation was much stronger than expected back in July as primary rents in particular surged 0.49% M/M vs analysts clustered around a ‘mid-to-high’ rounded 0.3% reading.
  • Primary rents inflation has been volatile in recent months, with that 0.49 in July after 0.26 in June, following what was a relatively consistent 0.40% averaged through Jan-May.
  • The 0.30% broadly expected this month likely incorporates some reversal of a particularly strong increase in primary rents in the West although as we showed in last month’s MNI Inflation Insight this could also have been seen as payback for what had been soft monthly increases relative to other major regions.
  • If realized, a 0.30% M/M print would likely be seen as continuation of a bumpy but moderating trend in rental inflation, although we feel risks of a surprise are skewed to the upside this month.
  • Putting these monthly rates into context and the progress that the FOMC needs to see, weighted OER and primary inflation saw a weighted average of 0.27% M/M pre-pandemic. We have only had one month meet that rate over recent years (June, with 0.27% as well). It re-accelerated to 0.39% M/M although the 0.30% broadly expected for August would come close to this.
  • Experimental data from the BLS’s New Tenants Rent index has slowed to -1.1% Y/Y for Q2 but we again stress it is particularly prone to revisions and latest quarters have tended to be revised up (Q1 is currently seen at 2.3% vs its first released 0.4%, Q4 is currently seen at 2.8% vs 0.9% and before that -4.7%).