Key highlights:

  • Penn State and Truflation propose two new inflation indexes to better measure housing inflation.

  • New indexes consider mortgage costs, property services, and maintenance for more accurate data.

  • Improved accuracy in housing inflation measurement aims to benefit policymakers, businesses, and analysts.

Collaborative approach to housing inflation

Pennsylvania State University and Truflation have joined forces to develop innovative methods for tracking housing inflation. Traditional metrics like the Consumer Price Index (CPI) and the Personal Consumption Expenditure Price Index (PCE) often fail to accurately reflect the complexities of housing costs. This collaboration introduces the Pennsylvania State University ACY Inflation Index and the Truflation Index as alternative metrics to address these shortcomings.

Image source: Bureau Labor and Statistics and Bureau Economic Analysis

The need for new metrics

Shelter costs are a significant component of household expenditures, but existing inflation measures have shown inconsistencies. The CPI, for example, has reported steady increases in housing costs, while Truflation's own housing index has shown a slower rise. This discrepancy highlights the limitations of traditional metrics and underscores the need for a more comprehensive approach.

Image Source: Truflation

Innovative data collection and analysis

The new indexes integrate advanced statistical techniques with extensive data collection, considering local and national housing market dynamics. Truflation's methodology leverages data from household budgets, national expenditure reports, and insights from their Personal Inflation Calculator. This rigorous approach ensures that the new indexes remain relevant and accurate, reflecting the true state of housing inflation.

Implications for stakeholders

Accurate housing inflation data is crucial for a wide range of stakeholders. Policymakers use this information to adjust tax brackets and social programs, businesses rely on it for pricing strategies and wage negotiations, and economists and financial analysts use it for economic forecasting and investment decisions. The new metrics proposed by Penn State and Truflation offer a clearer picture of housing inflation, potentially leading to more informed and effective decision-making.

The bottom line

The collaboration between Penn State University and Truflation represents an advancement in the measurement of housing inflation. They are developing alternative indexes that address the limitations of traditional methods. This promises to provide more accurate and comprehensive data, benefiting a wide range of stakeholders and contributing to a more resilient economy.

If you are interested in reading the full research report, you can check here.