Housing costs continued to increase in August.
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Housing costs continued to increase in August but for the first time since December, the gain wasn’t the greatest contributor to a monthly rise in inflation.
Gasoline was the largest contributor to the index’s seasonally-adjusted 0.6% increase in August from July, the Bureau of Labor Statistics said in a Wednesday release, accounting for more than half of the overall increase. The gasoline line item gained 10.6% between August and July.
Gains in the cost of shelter also contributed to the monthly increase in the consumer price index, the BLS said. The shelter index, which is largely built of measures of rents and rent-equivalents along with other housing service costs, increased 0.3% from July’s level—a slower gain than the 0.4% increase one month prior.
Shelter costs driving the inflation gauge’s overall increase has been a common refrain in BLS press releases this year, which is why it’s notable that housing wasn’t the biggest contributor to the monthly overall increase in August. The last time shelter wasn’t largely responsible for an overall gain in inflation was in December 2022, when falling gasoline costs outweighed gains in shelter costs, leading to an overall decline in the monthly inflation gauge.
Two sub-measures of housing rental costs, rent of primary residence and owners’ equivalent rent, gained a respective 0.5% and 0.4% month-over-month, and were 7.8% and 7.3% higher than a year prior.
Housing costs’ persistent contribution to the closely watched inflation reading isn’t necessarily unexpected. Because of the way increases in rent and rent equivalents are measured, the component is notably sticky, with the CPI’s reading continuing to increase quickly while measures of asking rents have cooled.
A team of BofA economists earlier this month wrote that they expected a modest moderation in measures of rent in August compared with the month prior. “That said, over time, we do expect shelter inflation to take another step down given that asking rent inflation measures continue to register unseasonably soft rent increases,” they wrote. “This alone should help keep a lid on inflation over the coming months.”
Meanwhile, asking rents approached their record highs in August, according to a
Redfin
report—but the news isn’t as dire as it appears at first glance. Rents measured by the Redfin company Rent. in August were $2 below their record-high level set last year, and up less than 1% from the month prior. Plus, some landlords are offering incentives as more supply softens competition for rentals, the Redfin release says—keeping rents high on paper but temporarily reducing the actual cost of occupying a unit.
“In real life, blended rental growth is more like 3-4% and will likely decelerate further in 2024 as a lot of supply hits the market,” noted Peter Boockvar, an economist and chief investment officer at Bleakley Financial Group, in an email. Boockvar added that increases in insurance costs will add upward pressure to CPI in the future.
A looming increase in rental supply is expected to soften rents this year and next. There was a record rate of large multifamily projects under construction in July, the most recent month for which Census and Department of Housing and Urban Development data is available.
Still, August’s reading doesn’t mean that rent costs are cooling, Bankrate chief financial analyst Greg McBride said in a statement. “The long-awaited moderation of shelter costs, at least as reflected in the CPI, remains somewhat elusive,” McBride wrote, attributing the slowdown in the overall shelter category to the 3% decline in the cost of lodging away from home. “Any moderation in shelter costs could prove to be short-lived considering home prices are rising again.”
Write to Shaina Mishkin at [email protected]
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