Inflation Dips To 5%, No thanks To Housing

Inman News

Housing costs remain stubbornly high despite relief on food, energy

The US Consumer Price Index cooled to 5% in March compared to a year ago, but remained elevated overall despite efforts to curb inflation, according to the Bureau of Labor Statistics.

The United States Consumer Price Index cooled to 5 percent in March compared to a year ago, but remained elevated overall despite the Federal Reserve’s efforts to harness price growth on consumer goods and housing.

The CPI for all urban consumers, a measure of inflation, rose 0.1 percent in March after climbing 0.4 percent in the previous month and 5 percent over the past 12 months, according to Bureau of Labor Statistics data released Wednesday.

Housing was flagged as the biggest contributor to the monthly CPI increase, with the index for shelter increasing 0.6 percent in March after increasing 0.8 percent in February.

The 5 percent increase recorded between March 2022 and March 2023 was the smallest annual increase recorded since May 2021, according to the BLS. Inflation remains well above the Fed’s 2 percent target and well above the 2.1 percent average seen in the three years leading up to the pandemic.

The Bureau of Labor Statistics’ index for food, meanwhile, decreased modestly by 0.3 percent while its energy index fell 3.5 percent, with all major energy indices declining. Beside shelter, indices for motor vehicle insurance, airline fares, household furnishings and new vehicles all increased, but none as much as housing, according to federal statisticians.

Housing inflation has remained stubbornly high because it is largely out of reach of the Federal Reserve’s regulations, experts explained.

“Housing costs are still a key driver of inflation, accounting for the largest part of the monthly increase in the CPI,” Bright MLS Chief Economist Dr. Lisa Sturtevant said in a statement. “The challenge with housing is that there are so many factors beyond the control of the Federal Reserve keeping housing costs high.”

The Federal Reserve has raised interest rates nine times over the past year in an effort to cool inflation following an economic rebound from the pandemic amid supply chain disruptions and labor shortages.

Fed officials raised the benchmark federal funds rate by a quarter percentage point in March bringing it to a range between 4.75 percent and 5 percent. Officials have signaled that stress on the banking system — resulting in the failures of regional lenders Silicon Valley Bank and Signature Bank — may end their campaign against inflation sooner than they had previously planned.

Higher interest rates have led to high mortgage rates which has drastically slowed the once red-hot housing market.

“High inflation led the Fed to raise interest rates, leading to higher borrowing costs, including making it more expensive to finance a home purchase,” Sturtevant said. “These higher rates are designed to lower demand for housing (and all sorts of other things) to reduce upward pressure on prices.”

“By some measures,” she added, “the inflation-fighting rate increases have been working to slow demand and ease price growth. Higher mortgage rates have slowed demand by pricing some would-be buyers out of the market.”