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AmextaFinance > Finance > ‘Relief should be on the horizon’: Rent inflation shows more signs of cooling
Finance

‘Relief should be on the horizon’: Rent inflation shows more signs of cooling

News Room
Last updated: 2023/06/13 at 4:14 PM
By News Room
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Housing costs remain a big driver of rising consumer prices. But the tides appear to be shifting.

The Consumer Price Index rose just 0.1% in May from a month earlier, according to Labor Department data — in line with economists’ expectations, and down from the 0.4% increase recorded between March and April. On a yearly basis, consumer prices rose by 4% in May, lower than the 4.9% rate notched in April, and the smallest annual increase seen since March 2021. 

Meanwhile, rents — a closely-watched category of the Consumer Price Index — were up just 0.5% in May from a month earlier, and 8.7% from a year ago. That’s a slight drop from the 8.8% annual increase seen last month.

That decrease might appear modest. But it’s enough to lead some economists to say that annual rent inflation has already peaked for tenants hammered by the massive price increases in 2022 that have since slowed to a trickle. 

“The pace of consumer-price increases is slowing. Despite the deceleration, inflation remains high and shelter costs are still the largest contributor to the core CPI monthly gain,” Orphe Divounguy, an economist at Zillow
Z,
+1.71%,
said in a statement Tuesday. “However, relief should be on the horizon. Annual increases in rent of primary residence and owners’ equivalent rent of residences peaked in March and April, respectively — continuing to edge down.”

What’s more, the Consumer Price Index’s rent-price data lags the actual rental market by about a year. The White House Council of Economic Advisors said in a blog post published in late April that the current softening of rental prices “will not begin to show up in CPI until the second half of 2023, at which point we expect housing to broadly start contributing less to monthly CPI.”  (Housing costs account for a hefty chunk of the CPI.)

The Zillow Observed Rental Index, which tracks market prices, reached a high of 16.9% for annual growth in February 2022, Divounguy said. It has since slowed to annual growth of 4.7%. 

“While this is welcomed news to renters struggling to afford rent, it also means that CPI Rent – and core CPI overall – should moderate further as the year progresses,” Divounguy said.

Read the full article here

News Room June 13, 2023 June 13, 2023
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