One of the biggest drivers of inflation is a cost that most Americans don’t have to absorb.

It’s called owners' equivalent rent, or OER, and it attempts to measure what homeowners could hypothetically charge to rent their own properties.

What can be misleading about this particular component of shelter costs is that most homeowners in the US are not renting their homes.

That could be distorting how everyday Americans view inflation, which is still showing signs of stickiness in the official government readings. The slow inflation fight is a major reason why many Americans feel so dour about the economy.

"When people see really high inflation, this is a component they do not see," Dean Baker, senior economist at the Center for Economic and Policy Research, told me. "If people are feeling bad about inflation and if a large chunk of that is OER, it doesn't make sense."

OER is keeping inflation elevated because it accounts for more than a fourth of the Consumer Price Index (CPI), one of the government’s main inflation gauges, and these costs have stayed hot even as overall inflation cools.

In May OER increased 0.4%, helping to make shelter costs the biggest contributor to that month’s CPI reading excluding food and energy costs.

OER is a smaller but still sizable component of the Federal Reserve’s preferred inflation yardstick — the Personal Consumption Expenditures Price (PCE) index. The latest PCE reading is due out this Friday.

'A payment that literally no one is making'

To capture OER, homeowners in the Consumer Expenditure Survey — what the CPI is based on — are asked: "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"

In this way, the state of the rental market informs this calculation. If rents are high, a homeowner likely would assume they would get more for rent and vice versa.

While rents have eased some this year, they are still just 1.4% off from their all-time peak in August 2022, Realtor.com found.

Still, most Americans aren’t paying to rent their home because the US is a nation of owners. The homeownership rate was 65.6% at the end of the first quarter.

In fact, nearly 40% of homeowners — or about 33.3 million people — don’t even have a mortgage payment every month because they paid off their home loan.

The remaining 60% of homeowners have a fixed mortgage payment that does not change from one year to the next. And almost 9 million of those with a mortgage lowered their payment even more during the pandemic when mortgage rates hit historic lows, cutting $220 from their monthly payment.

"In other words, [OER] is a payment that literally no one is making," Baker wrote in his blog last month.

"If inflation is being driven by an item that people aren't paying, it can't be driving people's expectations," Baker said later to me over the phone.

'One of the very hardest things in inflation'

Let’s take a personal example.

Before my household paid off our mortgage on our Manhattan co-op apartment several years ago, the mortgage payment ($1,510) plus maintenance totaled $2,600 per month. Another pre-war apartment of the same size in the building next to us is under contract to rent for $3,500 a month.

If the people conducting the Consumer Expenditure Survey asked me to estimate what rent I could get for our apartment, I would probably say $3,500 a month, even though my old mortgage payment was far lower than that.

To be sure, newer homeowners are paying much more for their housing because home prices have kept rising and mortgage rates remain elevated compared with the last decade.

In fact, the monthly mortgage payment for homeowners who bought in 2022 and 2023 was $2,100, the Fed found, while those who bought earlier than that are only paying $1,400 a month.

Still, newer homeowners are "not a large share of the population," Baker said. "The number of people who are first-time homebuyers is around 1 million a year."

The Federal Reserve is well aware of the shortfalls of OER.

"We also do sort of this thing where we impute a rental value to owned homes," Fed Chair Jerome Powell said earlier this month.

"One of the very hardest things in inflation and in prices is how to think about the services that someone is getting by living in a home that they could rent, but they're actually living in it."

In fact, shelter costs (including OER) in the PCE index makes up a smaller, though still sizable 15.5% of that reading, versus 36% in the CPI.

But the central bank is not discounting OER.

"It is not something that we're the only country that does, and it's not something we're looking at changing, or would look at changing, anytime soon," Powell said.

Baker agrees.

"The Fed, I trust, they are aware to the extent that OER is a big factor in inflation," he said.

In fact, stripping out OER puts inflation close to the Fed's overall 2% target, Baker noted in a second blog post. For that reason, he thinks the media could do a better job of explaining what the CPI measures versus the costs Americans actually pay. That way, folks may not feel as bad about inflation as they do now.

"If we are trying to be serious, what is the inflation that people actually see? It might make sense [for reporters] to take out OER, because no one pays that."

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Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on Twitter @JannaHerron.