Housing inflation accelerates in October amid “slower progress” in fighting inflation

The latest consumer price index (CPI) report, released on Wednesday, showed housing costs rose in October, posing an ongoing challenge to the Federal Reserve's fight against inflation.

Data from the Bureau of Labor Statistics showed that housing costs, the largest component of the CPI, rose 0.4% in October compared to the previous month. This was higher than September's 0.2% increase and accounted for more than half of October's total monthly increase. On an annual basis, accommodation costs rose 4.9% in October, matching the year-ago increase of 4.9% in September.

“Declining inflation stalled in October, with the usual culprits—rising housing and food costs—added to higher used car prices,” Robert Frick, corporate economist at Navy Federal Credit Union, wrote in a post-release note. “Given that food, transportation and accommodation are the three main concerns for consumers, this report has not eased the burden of high prices.”

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Economists have long expected a slowdown in rent increases, which is reflected in other data, but a widespread slowdown in rents is not yet evident in the CPI report. The discrepancy may be partially explained by the fact that the BLS collects rental data every six months, which creates a lag.

“Housing inflation appears to have gotten a little louder over the past two years due to methodological changes, meaning it is harder to interpret too much of a single data point. Like broader inflation, housing appears to be making slower progress recently,” said Josh Jamner, investment strategy analyst at ClearBridge Investments, wrote after the release.

“However, given the observed market prices and the known lags factored into the accommodation CPI calculation, the target for inflation over the next few months still appears to be lower.”

According to the BLS report, rents rose 0.3% in October from the previous month, unchanged from September's 0.3% increase.

Owners' equivalent rent saw a slight increase, rising 0.4% for the month, compared to September's 0.3% gain. Owners' Compensation Rent is the estimated rent a homeowner would pay if they were renting out their own property.

Broadly speaking, inflation rose 0.2% in October from the previous month, unchanged from September's rise and in line with economists' estimates.

“Given the outsized importance of rental inflation, housing costs will need to rise more moderately in the coming months to keep inflation in line with the ultimate 2% target,” Nationwide chief economist Kathy Bostjancic wrote after the data was released.

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