Inflationary embers still burn from higher rents
Add Axios as your preferred source to
see more of our stories on Google.
Price pressures have come down greatly over the last two years, but the lingering effects of higher rents just won't go away.
Why it matters: The rent effects will take time to roll off, and policymakers have confidence they can look past them, even with a slightly higher inflation reading.
The big picture: The overall trajectory for inflation looks solid, and a third consecutive Fed rate cut looks more likely than not in mid-December. But the latest data contains reminders that inflationary embers remain from the 2021-2022 price surge.
- It sets up a complicated policy landscape for 2025, as Fed officials decide how much further rates should come down without risking a reignition of inflation.
- It is made more complex by an uncertain outlook for immigration and trade policy under President-elect Trump.
By the numbers: The Consumer Price Index ticked up to 2.6% over the 12 months ended in October, from 2.4% in September.
- Core inflation, excluding food and energy, was unchanged at 3.3%.
- A major culprit was a rebound in shelter inflation — primarily due to higher rents — up 0.4% in October alone and up 4.9% over the last year.
- There were also steep rises in airfares (up 3.2% in October alone) and used cars and trucks (2.7%).
Yes, but: The numbers came in broadly as expected, creating some relief after a few too-toasty-for-comfort inflation prints. That gave Wall Street some assurance that another rate cut is indeed on the way next month.
- Bond yields fell, and the market-based odds of a December rate cut rose to 82%, from 58% Tuesday, per the CME FedWatch tool.
State of play: Housing has been the Achilles' heel of CPI data for the last couple of years. Market rents have been stable or even dropping, but as old leases roll over into higher-rent leases, CPI inflation has stayed high.
What they're saying: "Housing inflation is the elephant in the room," Minneapolis Fed president Neel Kashkari tells Axios. "We know mechanically [it] is going to take a couple of years for the new leases to work their way through."
- "So far, I think our broad disinflation story is still on track," he says.
