NEW YORK – US stock and bond markets rose after the government reported July inflation of “only” 6% per year, compared to 11.4% in June. But inflation (including “core” inflation) is about to explode, due to soaring rents and home prices.

The fall from superheated to merely scorching inflation was occasioned by one line item in the report, namely used cars. A 25% year-on-year increase in the wholesale price of used cars according to the Manheim Index put a bulge in the June number.

The report, though, ignored the T-Rex in the living room, namely exploding home rents. The median asking rent jumped 19% between the second quarter of 2020 and the second quarter of 2021, according to the US Census Bureau.

According to Zillow, average rents jumped 6% between last December and June, while reports the median rent up by 10% during the same period.

Yet the Bureau of Labor statistics claims that rents rose by just 2.3% between December and June. The fact that the US is just coming out of an eviction moratorium may skew the BLS numbers downward; tens of millions of landlords can’t raise rents because they can’t evict people who haven’t paid rent in a year or more.

Nonetheless, soaring rents will turn into a soaring Consumer Price Index (CPI) during the next several months. The Census Bureau estimate of the median asking rent is a volatile series, and jumps around while the CPI’s rent component is fairly stable.

Nonetheless, they have moved in the same direction for the past 35 years (see top chart).

What has never happened since these numbers were first collected is an all-time record jump in the median asking rent at the same time as a decline in the rent component of the CPI. One side has to be wrong, and it’s not the Census Bureau, Zillow and

Shelter comprises a full two-fifths of the CPI. What the Bureau of Labor Statistics calls “owner-equivalent rent” (the rent you would charge yourself to live in your own house) is virtually identical to the rent component of CPI, as shown in the chart above.

Rents are rising at an annual rate of at least 12%, which should translate into another 5 percentage points of annual CPI growth. When these numbers finally post, stock and bond markets will be very unhappy.