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NEW YORK – Although core inflation has declined in the last year, the cost of housing continues to be stubbornly high. The cost of shelter for January increased 6% from a year ago, and the U.S. Labor Department said it has risen faster on a monthly basis than in December, accounting for a large portion of consumer price increases in January.
For many families, housing is their largest monthly expense and it weighs heavily in inflation calculation, which the Federal Reserve is watching to gauge when it should lower benchmark interest rates. Unless housing costs cool, experts say it is unlikely that core inflation will return to the Fed’s 2% target.
Housing has become more expensive for home buyers with higher mortgage interest rates and home values, while at the same time, rents have risen less or are declining in some markets.
Housing inflation data is based on rents, and with existing homeowners insulated from market changes with fixed-rate mortgages and stable monthly payments, the true impact of home prices and mortgage rates do not directly impact inflation data.
Economists are more cautious about their predictions for housing inflation in 2024, with housing costs, as measured in the Consumer Price Index, still rising faster than before the pandemic, even as overall inflation has eased.
There are signs of slowdown with rents rising at an annual rate of less than 5% in the last three months, down from a high of 10% in 2022. But the government’s measure of homeowners’ costs still shows it increasing, and rents are increasing or decreasing at different rates in different regions.
Source: New York Times (02/26/24) Casselman, Ben
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