A cooldown in the housing market has started to spill into rents, though the latest inflation data out Tuesday showed housing costs accounted for the majority of inflation pressures in the economy last month.
The shelter component of the February Consumer Price Index (CPI) — which makes up a third of the overall inflation index — rose 0.8% over the last month and 8.1% on a yearly basis in February.
The shelter index consists of rent prices and what it would cost the owner to rent an equivalent apartment, known as owners' equivalent rent, which advanced 0.7% over the last month.
The shelter index was the dominant factor in the monthly increase in the index for all items excluding food and energy, according to the Bureau of Labor Statistics report.
"Housing costs accounted for over 70% of the increase in February and [were] the largest contributor to the monthly growth rate," Jeffrey Roach, chief economist at LPL Financial, wrote in a statement following the release. "This component will not likely be a significant driver of inflation by year end as more multifamily units come to market."
This data from the BLS comes as real-time data from Redfin shows signs the rental market has started to cool off.
The median asking rent price for an apartment increased 1.7% from a year ago to $1,937 in February — the smallest gain since May 2021 amid higher vacancies and a big wave of new apartment supply, Redfin data out last week showed. February's rent read marked the ninth-consecutive month that rent growth slowed from the prior year. Compared to January, rents in February fell 0.3%.
And this dynamic is expected to show up in the government's data later this year.
"In the housing services sector, we expect inflation to continue moving up for a while but then to come down, assuming that [rent increases associated with] new leases continue to be lower," Federal Reserve Chair Jerome Powell said in a press conference last month.
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