Oct 13, 2023 - Economy

September inflation figures show bumpy ride to taming rent growth

Data: BLS via FRED; Note: The CPI index for shelter includes pricing on rent, lodging away from home, and tenants and household insurance; Chart: Axios Visuals
Data: BLS via FRED; Note: The CPI index for shelter includes pricing on rent, lodging away from home, and tenants and household insurance; Chart: Axios Visuals

It's all coming down to rent. More than half of the increase in inflation in September was driven by a surprising uptick in rent prices, per the Consumer Price Index data out Thursday.

Why it matters: Much of the story of inflation over the past year and a half has been about housing — and the latest numbers show that we haven't quite reached the final chapter.

Zoom in: Rent inflation had been moderating. Especially as measured by private market data on asking rents. So the September numbers were a surprise.

  • Most economists were fast to say the numbers were likely an anomaly.
  • "A sustained drop in shelter inflation is around the corner, given that market rent growth remains tepid," Preston Caldwell, chief U.S. economist at Morningstar, wrote in a note.
  • Still, there could be something more fundamental driving the increase, economists from Bank of America said in a note Thursday. It's possible higher rent increases in larger cities are offsetting softer increases in smaller cities, they write. More data is needed to see if this is a "blip."

By the numbers: The Consumer Price Index rose 0.4% in September, a tick higher than analysts had expected, as Axios' Neil Irwin wrote.

  • The index for shelter was the largest contributor to the increase, the Bureau of Labor Statistics said in its release. An uptick in gasoline prices also contributed (and gas prices have since come down from September).
  • Rents were up 0.5% in September, and 7.4% from last year. That's a big number, but well off the peak of 8.8% in April.
  • Meanwhile: Private market data has been showing rent inflation falling for at least a year. According to Zillow, rents increased 3.2% in September from the previous year — down from a peak of 16% in February 2022.
  • Redfin's data showed rents were basically flat — increasing just 0.4% year over year.
  • "It's not just us. Anyone who's putting out these private indices, it's all really consistent" in showing the slowing rent inflation, Chen Zhao, who leads the economics team at Redfin, tells Axios.

The big picture: The private data is just measuring asking rents  that's the rate you pay on a new lease.

  • The Consumer Price Index measures rent differently — surveying renters and landlords about prices. That's a number that includes renewal rents.
  • The CPI also measures what's called Owner's Equivalent Rent — asking homeowners what price their home would get on the rental market. A way of assessing housing inflation that's often criticized — and harder to understand.

The bottom line: "This is what happens when inflation is coming down," said Zhao. "The ride down is not a perfectly straight one. It's kind of a bumpy one."

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