Recent historic movements in housing or “shelter” costs, as measured by the Bureau of Labor Statistics (BLS), may have exposed a weakness in the indices used by policymakers to measure inflation. Were a timelier measure of shelter inflation used, Amherst believes recent monetary policy decisions could have been quite different both in timing and magnitude. Our house view is that the Federal Reserve (Fed) has been late in picking up sustained high levels of inflation, may still be materially behind the curve, and, if it continues relying on prevailing statistics, could overshoot as the next six quarters unfold. This article describes a well-known cause of shelter lag, presents a potential additional source of lag, and illustrates how both may lead to a mismatch between monetary policy and the state of inflation.

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