Consumer-price increases in the U.S. may be cooling, but rising housing costs are still fueling lingering inflation.
Consumer inflation was up 4.9% in April from the same month last year, the Labor Department said Wednesday — down significantly from the eye-watering 9.1% annual inflation rate notched in June 2022. On a monthly basis, meanwhile, consumer prices rose 0.4% between March and April.
Still, even as the cost of energy services, airline fares, and even certain food items like dairy products declined that month, shelter prices were up 0.4%, making that category the “largest contributor to the monthly all-items increase” after the smaller 0.1% monthly gain in consumer prices recorded in March, according to the Labor Department. Higher prices for used cars and gasoline also contributed.
Overall, housing costs were 8.1% higher in April compared to a year earlier, with rental prices specifically up 8.8%, according to the Labor Department.
But it’s not all bad news for tenants. Despite housing inflation holding firm, “it seems to have downshifted in the last few months,” Jefferies economist Thomas Simons said in a note Wednesday.
And though the 0.4% monthly increase in core inflation is “still running far too hot for the Federal Reserve to relax” entirely after a series of rate hikes, “there are some signs that service sector price pressures are moderating so a June Fed pause [looks] likely,” James Knightley, the chief international economist on U.S. inflation at ING, said in a note Wednesday. “With corporate pricing power flagging and shelter costs topping out, we could see core CPI in the 2-3% range by year-end.”
Importantly, the consumer-price-index data on rental prices also tends to lag private-market indexes. Jeff Tucker, an economist at Zillow, which has its own Zillow Observed Rent Index (ZORI), said in November that since the company had seen rental prices drop from last February’s peak, February 2023 would potentially mark a “turning point” in CPI rent inflation, while a deceleration might be visible in March.
In a separate report last week, Tucker said the annual growth rate for asking rents nationwide had hit 5.3% in April, down nearly 12 percentage points from the rate of 16.9% in February 2022. The company’s earlier prediction, he wrote, had arguably “nearly come to pass.”
“The annual growth rate of CPI-Rent was 8.8% in March, unchanged (after rounding) from the 8.8% annual growth rate in February,” Tucker said. “The flatlining annual growth rate arrived thanks to a sudden plunge in the monthly growth rate, which fell to a compounded annual growth rate of 5.6%, far below its pandemic-era peak of 11.1% in September of 2022.”
Even if that rate “bounces around” near 8.8% for a few months, “the data this spring seems to confirm that we are somewhere near the summit for official annual CPI rent inflation, and the deceleration of asking rents measured by private-sector indices like ZORI should eventually flow through into the CPI,” he added.
Tucker said in a tweet Wednesday that based on the Labor Department’s most recent consumer-price data, “the peak seems to have arrived for annual rent inflation.”
On the other hand, Meagan Schoenberger, a senior economist at KPMG Economics, said in a note Wednesday that “shelter costs may not moderate as rapidly as hoped.”
“Recent research from the Richmond Fed on high-frequency rent data suggests that rent prices may not cool to their pre-pandemic pace until late 2024,” Schoenberger said. “Underlying detail reveals that the deceleration is concentrated in lodging away from home, such as hotels.”
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