In the “last mile” of battling inflation, rent hikes are slowing the fight
As we gear up for a third straight summer grappling with sticky inflation, the culprits are becoming more clear, with stubborn rental inflation taking center stage. Housing comprises a third of the consumer price index — so while goods inflation is below the 2% target, housing inflation is still at 5.6%. That’s an improvement from its 8.2% reading a year ago, but still way behind schedule.
- One contributing factor is the enduring shortage of affordable housing across many major US cities — and high rates may be scaring off builders from starting more construction.
- Plus, soaring mortgage rates are preventing renters from transitioning to homeownership — keeping the pool of renters high while supply remains low.
The Fed is optimistic: Fed Chair Jerome Powell expresses “real confidence” that housing costs will come down — he just doesn’t know when exactly. Given that only a small fraction of leases turn over each year, rental costs are a lagging indicator. Many within the Fed anticipate a moderation in housing prices soon, now that prices of goods and services are beginning to stabilize. Tomorrow’s CPI reading will test that theory.
