U.S. Rent inflation has often greatly exceeded Owners' Equivalent Rent (OER) Inflation. Why? Critics believe that the Bureau of Labor Statistics is making a faulty utilities adjustment to OER and that the Federal Reserve Board should focus only on Rent inflation. Both beliefs are misguided....

Between 1999 and 2006, there were two episodes during which inflation in the Rent index in the CPI diverged markedly from inflation in the index for Owner’s Equivalent Rent (OER); early in 2007, these series began to diverge again. Such divergence often prompts many to question CPI methods. A...