Inflation, and Housing Costs, Are Set to Turn a Corner
Americans are paying more to rent or insure their homes than a few years ago and much more to buy one with a mortgage, but there’s a silver lining in that hardship: A cool-down could help convince the Federal Reserve to pause its series of interest rate hikes. Thursday’s report from the Labor Department on inflation showed that more than 90% of the increase in prices in July came from shelter. Other big contributors were things like motor vehicle insurance.
The overall rate of inflation in July was in line with the expectations of economists polled by The Wall Street Journal, rising 0.2% on a seasonally-adjusted basis—the same as June. That puts the 12 month increase at 3.2%, down from the multidecade peak of 9.1% hit in June 2022. As the Fed mulls its next steps, there will be two features of the Labor Department’s CPI calculation that pull Fed rate-setters in opposite directions.
On the hawkish side, the so-called base effect will mean that, even if the monthly figures are fairly tame, they will be compared with year-ago figures that contributed to the sharp cooling in inflation from the June 2022 peak. That could keep the 12-month increase well above the 2% target the Fed would prefer before it declares victory. But housing costs could ride to the rescue and even allow for some easing by next year.
A letter this week from the Federal Reserve Bank of San Francisco notes that all sorts of private sector indicators of rents and house prices are slowing. These include things such as Zillow’s Home Value Index, the Apartment List Vacancy Index and the S&P/Case-Shiller U.S. National Home Price Index.
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