Housing costs are still a big problem

The costs of shelter kept inflation stubbornly high in January.

The big picture: Early on, COVID-era inflation was driven by the cost of stuff — cars, lumber, bikes, for example. But now, getting inflation under control hinges on controlling costs for services, a segment in which housing is the heavyweight.

By the numbers: So-called core inflation — which excludes volatile food and energy, and is a closely watched measure of price trends — was up 5.6% over the last year, according to the January Consumer Price Index released Tuesday.

• Shelter costs accounted for almost 60% of that.
• And shelter was about half of the higher-than-expected 6.4% annual rise in headline inflation. (Analysts expected 6.2%.)

What they're saying: "What is concerning, and influential for the Fed, is that services inflation continues to remain elevated with limited progress the past few months, with shelter costs leading the way," wrote Rick Rieder, chief investment officer of global fixed income at giant money management firm BlackRock.

Yes, but: While shelter costs remain elevated in the CPI numbers produced by the Bureau of Labor Statistics, private-sector market research suggests some housing expenses are declining.

For instance: An index of rental prices produced by real estate firm Zillow found that asking rents declined in October, November and December 2022.

• Zillow says BLS rent metrics tend to lag its rental index by about a year.

Yes, but, but: That traditional lag could be broken since there are remarkably few homes available to buy — and that could keep American home prices from declining.

The bottom line: While such data distinctions are important to the Federal Reserve — and therefore the stock market — the facts about American housing are pretty clear.

• Shelter has gotten incredibly expensive over the last few years, as prices, rents and mortgage rates have all skyrocketed.
• And, due to the lack of inventory and higher borrowing costs, those prices seem unlikely to plunge any time soon.