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Would you please explain the difference between these?As I know somewhat what their meaning, I can't understand what the second concept.

In addition, I wonder the second one is more important considering the following site https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm.

Please excuse me if my first post is messy. Any help would be appreciated.

Rent of primary residence

Owners' equivalent rent of residences

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  • $\begingroup$ You might want to clarify where exactly the linked site is giving you a hard time. According to that site, "owner's rent" is an owner's estimate classified as investment whereas "rent" is a verifiable amount that tenants pay and is classified as consumption. $\endgroup$ Commented Jan 13 at 15:58

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"Owners’ equivalent rent of residences" is an notional amount representing how much rent would be charged for a residence (unfurnished and excluding utilities) if it were not being occupied by the owner. In a sense it is used to estimate the cost of being able to use these premises.

It is included in the housing/shelter component of CPI and changes affect inflation calculations because otherwise there would be a gap in housing costs and total consumption with only actual rental costs being measured, despite rentals being a fraction of the total housing market. CPI does not measure the capital value of properties (investment) or mortgage interest costs (debt-financing). You would not want CPI distorted by for example somebody buying the house they previously rented if nothing else has changed. If there are differences in price changes in the rental costs between the types of property renters typically live in and those that owners typical live in, this equivalent rent component allows that to be reflected in the overall CPI.

The U.S. Bureau of Labor Statistics has a page describing some of its detailed methodology and more in its CPI manual.

Incidentally, since this estimate is treated as rent that owners notionally pay themselves, it not only adds to consumption, but also adds to income, at least in GDP expenditure and income calculations.

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