Nick Timiraos in The Wall Street Journal writes that climbing housing costs are set to keep inflation elevated this year, creating another challenge for Federal Reserve …(WSJ)
– “Annual housing inflation, as measured in the CPI, hit a recent low in early 2021 at 1.4% and it has since rebounded, to 5.4% in May, well above the annual average of 3.5% between 2015 and 2019.”
– “Housing inflation is important because it represents around two-fifths of core CPI and one-sixth of the Fed’s preferred inflation gauge, the personal-consumption expenditures price index.”
David Wilcox, a senior economist at Bloomberg Economics told The Journal that he expects overall inflation to diminish this year but that “slowdown is going to have to emanate from other sectors of the consumer marketplace.” Why? Because he also believes rent inflation will continue to rise this summer before peaking at around 6.5% over the next several months. This would be a 36-year high.
Timiraos is not alone in this opinion. Jonathan Levin at Bloomberg wrote about his very topic last week. “Because of the mechanics alone, housing is likely to keep exerting upward pressure on the index into 2023, and there may come a point in the not so distant future when policy makers may decide to look past the housing element in the index. “