Jue Insight : Differences in Rent Growth by Income 1985‐2021 and Implications for Inflation

The cost of shelter is a large portion of household expenditures and therefore shelter has a large weight in inflation measurement. Since rich and poor households tend to make different housing and location choices, does the shelter component of inflation differ across the income distribution? I calculate rent growth for households in each quintile of the income distribution from 1985 to 2021 and find modestly higher rent growth for lower income groups. However, because lower‐income households have larger expenditure shares in housing, I find little difference across groups in headline inflation. Therefore, different housing choices have not generated materially different inflation rates across the income distribution