According to the latest Consumer Price Index (CPI) report, there’s one area where inflation remains stubbornly high: housing costs.
Housing costs rose 0.4% month-over-month in July, up from a 0.2% increase in June, according to data released Wednesday by the Bureau of Labor Statistics. Housing inflation accounted for nearly 90% of the CPI’s monthly increase in July.
“The most disappointing part of the report is the housing data,” Omar Sharif, founder of research firm Inflation Insights, wrote in a note after the report’s release.
Rents and owner-occupied rents rose 0.5% and 0.4% in July from the previous month, slightly up from 0.3% in June. Owner-occupied rents are the hypothetical rent a homeowner would pay for the same property.
“On the surface, this is not a good reading as it calls into question the recent string of low numbers,” Sharif added.
Overall, the CPI rose 0.2% month-on-month in July, up from a 0.1% monthly decline in June.
Economists have been expecting the slowdown in rent growth to show up in Consumer Price Index data for more than a year, but the BLS collects rent data every six months, which means there is a lag.
The main reason for the slowdown in rent growth is the influx of new apartment supply onto the market.
“Housing inflation, given its well-known lag, is likely to continue to weaken, leading to continued deflationary trends in key inflation measures over the coming months,” Josh Jamner, investment strategy analyst at Clearbridge Investments, said in a statement after the CPI was released.
Shelter costs increased 5.1% year-over-year in July, but that’s lower than the 5.2% year-over-year increase in June and the peak of 8.2% in March of last year.
Housing costs rose 0.4% from the previous month in July, up from a 0.2% increase in June, according to data released Wednesday by the Bureau of Labor Statistics. (Allen J. Schaven/Los Angeles Times via Getty Images) (Allen J. Schaven via Getty Images)
“We believe the Fed has played a role in housing policy, but we’re waiting for the final report,” Igor Popov, chief economist at Apartment List, told Yahoo Finance ahead of the release.
“So the final checkmark will come when the housing component fully recovers to pre-pandemic levels. But until then, we expect housing to continue to slowly catch up with the market, and it looks like it will remain that way for many months,” the economist added.
It may take some time.
Researchers at the Federal Reserve Bank of Minneapolis project that housing inflation will likely remain elevated for the rest of this year and into 2025. Their model projects that housing inflation will reach 4.8% year-over-year in December and remain above pre-pandemic levels through the end of 2025.
The story continues
“Even if monetary policy has an immediate impact on market rents, rents as measured by the CPI will only gradually reflect these market conditions,” financial adviser Alisdair Mackay wrote in a research note. “As things stand, market rent growth normalized over a year ago, but we are still waiting for the effects to play out fully in standard measures of inflation.”
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Dani Romero is a reporter for Yahoo Finance. Follow her on X Dani Romero TV.
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