Starwood Capital's Sternlicht Says Inflation Will 'Drop Hard,' Pinpoints 'Lag' In Rental Data Reporting

Billionaire investor Barry Sternlicht predicted that inflation would "drop hard," citing sliding rent prices. The CEO of investment firm Starwood Capital Group also said the White House should "correct" the way it reports rental data as he believes the correction will ultimately bring down inflation.

"I think inflation is going to drop hard," Sternlicht said in response to JPMorgan Chase CEO Jamie Dimon's statement to shareholders about "potentially higher inflation." Sternlicht said his remarks on inflation dropping were related to "the rent component of CPI," which he explained further in a recent interview with CNBC's "Squawk Box."

The consumer price index (CPI) reflects the spending patterns of consumers and measures the average change in prices over time.

Sternlicht noted that food prices have already started to drop, but that there is an issue with how the government is reporting rental data. The billionaire brought a slide in the interview that showed a blue line representing what he called "actual rents," going down and an orange line representing rental data, presented by the government climbing.

"There's a lag in the way the government reports rental data," Sternlicht argued. He said if the data presented is corrected, the applied changes will reflect a drop in inflation sometime in late summer and early fall. The investor also said that his rent data comes from a national rent database.

According to Sternlicht, shelter accounts for one-third of CPI, and in the February CPI data from the government showed that the shelter index, which measures changes in shelter costs, was the largest contributor to the month's increase as it made up for over 70% of the all-items increase, as per Fortune.

Data from Rent.com indicated that the monthly decreases in rental prices "brought the national median rental price down to $1,937 from $1,942 in January." The rental prices tracker also noted that February's shelter costs represented a 5.65 percent decrease from the peak in August 2022 which put the national median rental price at $2,053.

In Rent.com's March report, it was found that as of February, 12 of the 50 most populous cities in the United States had declining year-over-year rent prices, including Oklahoma City, New Orleans, Austin, and Minneapolis-St. Paul and Phoenix.

This is not the first time Sternlicht called out the government for its data presentation.

In September, the billionaire investor said the Federal Reserve was "attacking the economy with a sledgehammer, and they don't need do," referring to the Fed's aggressive interest rate hikes.

"The data they're looking at is old data," Sternlicht pointed out, adding that the shelter data the Fed is using was not relevant. He urged officials to be more proactive in identifying "real-time" pressures that affect inflation and the economy.

Also in October, Sternlicht said Federal Reserve chair Jerome Powell and "his merry band of lunatics" were leading the U.S. people toward "social unrest." At the time, Sternlicht told Fortune that rising interest rates were stirring social unrest among Americans.

Sternlicht also argued that while rent prices were "slowing" across the board, the CPI was still including data from over six months ago that factored in rent price increases, thus providing the Fed with "misleading" information about inflation.

The billionaire investor did not discuss what a drop in inflation means for the real estate market, with Starwood Capital being focused on global real estate, but the sector is sensitive to rate hikes as property valuation can slide when interest rates climb.

While Sternlicht recently pointed out that rental prices were sliding, he did say earlier this year the country will see a recession "in the third or fourth quarter." He went on to predict that inflation "will go negative in May or June" as the housing equivalent number was pointing positive. "The risk is [Powell] keeps going" in terms of hiking interest rates, he explained.

Other analysts and economic experts have also raised concerns about a potential recession this year. Bank of America (BofA) strategist Michael Hartnett said Monday that 12 charts have indicated the economy was on the verge of entering a full-blown recession.

Among the charts that suggested a slowdown were manufacturing activity, global earnings, the jobs market, and global housing prices. "Global house prices turning negative as higher rates hit real estate in US, UK, Canada Sweden, Australia and New Zealand," the BofA said.