Housing prices are keeping inflation high

Inflation is finally cooling off. Energy prices are down. Food prices are mellowing out. But the cost of having a place to live is still rising much faster than just about every other essential.

Headline inflation was up 3.1% from a year ago, and so-called “core” inflation, which excludes volatile food and energy prices, was up 4%. But the cost of shelter, which is the biggest component of the basket of goods the BLS uses to measure the cost of living, was up 6.5%.

“The shelter index was the largest factor in the monthly increase in the index for all items less food and energy,” read the Bureau of Labor Statistics report accompanying the latest data on consumer prices. “The shelter index increased 6.5 percent over the last year, accounting for nearly 70 percent of the total increase.”

When the covid-19 pandemic hit, the cost of housing surged as those who could afford it sought out bigger homes and many city-dwellers transitioned to the suburbs. That and a glut of savings unhindered by low interest rates combined to exacerbate what had been a long-simmering housing crisis the U.S.

But now that baked-in price hikes and rising mortgage rates spurred by tightened Federal Reserve monetary policy have put a bit of a damper on things, the housing market is also starting to cool. Housing prices tend to be “stickier” than most costs, which means that when they rise we feel it more—and for longer.

Does that mean that pre-covid levels of relative housing affordability are coming back? No. But at least American wages, which are still rising faster than before the pandemic thanks to increased worker power, will have a chance to make up some lost ground.