Housing is the largest expenditure for most households — and also the most controversial component of inflation measurement. A house purchase is partly consumption, partly investment; and the cost of living in a home you own is real but never involves an actual rent payment. Different statistical agencies have made different choices about how to handle this, which makes cross-country inflation comparisons treacherous.
How the US handles it: owners' equivalent rent
The Bureau of Labor Statistics uses owners' equivalent rent (OER) — a hypothetical measure asking homeowners what they would charge to rent their home unfurnished. OER has a weight of about 26% of CPI-U, and shelter overall (rent + OER) is about 36%. The problem: OER is backward-looking. It tracks existing leases, not new market rents. When market rents surged in 2021–2022, OER was slow to react. Conversely, when new-lease rents fell in 2023, OER kept rising for another 12–18 months. This lag was a major reason US core CPI stayed elevated into 2024 even as underlying housing market conditions normalised. The FRED shelter CPI series shows this sticky trend clearly.
How Europe handles it: exclusion (for now)
The EU's Harmonised Index of Consumer Prices (HICP) excludes owner-occupied housing costs entirely from its headline measure. Rents paid by tenants are included, but the implicit cost of owning and living in a home is not. This creates a systematic difference with US CPI: in periods of rapid house price growth, HICP understates the true cost-of-living increase for homeowners. Eurostat is piloting an owner-occupied housing price index (OOH) as an experimental statistic, with plans to eventually integrate it into HICP+OOH. The ECB has noted that including OOH would have added roughly 0.3–0.5 pp to euro-area headline inflation at the 2022 peak.
The UK: a middle path
The UK uses two official measures. CPI (the Bank of England's target measure) excludes owner-occupied housing, like EU HICP. CPIH — the ONS's preferred measure — adds owner-occupied housing using rental equivalence, similar conceptually to the US approach. The ONS methodology paper explains the construction. CPIH typically runs 0.1–0.3 pp below CPI because OOH costs are smoothed more than other components.