The new numbers showing the rent component of the consumer price increase is no longer rising is crucially important as housing costs have been a major driver of inflation, Apartment List economists say in a new report.
The report says the year-over-year growth rate of the rent component “has finally leveled off, coming in at 8.8 percent in March, which is flat compared last month.
“On a month-over-month basis, rent CPI increased 0.5 percent in March, down from 0.7 percent in February. In contrast, the Apartment List national rent index is currently up by just 2.6 percent year-over-year, a growth rate that has been cooling rapidly for over a year after peaking at a staggering 18 percent in December 2021.”
- Topline CPI increased 0.3 percent month-over-month, but year-over-year inflation continued to cool, falling to 5 percent, down from 6 percent last month. Even though overall inflation is cooling, the housing component is continuing to keep it elevated, and was the dominant factor contributing to this month’s overall increase.
- CPI rents, however, reliably lag movements in market rents by 3-5 quarters. The Federal Reserve is well aware of this relationship, clarifying that they also track private market-based indices, including Apartment List Rent Estimates, to understand where CPI rents will trend in coming months.
- “Because our index serves as a leading indicator for the housing components of CPI, we expect rent CPI to cool steadily in the months ahead,” the report says.
Why Housing Costs Are Keeping Overall Inflation Elevated
As a reminder, the “shelter” component of CPI – which includes both renter-occupied and owner-occupied housing costs – is the single largest component of topline CPI, comprising one-third of the overall index.
“And because costs for owner-occupied housing are measured with the concept of “owner’s equivalent rent,” trends in market rents are the key determinant of not just the rent component, but of the shelter component as a whole,” Apartment List economists write.