Housing costs remained elevated in March, raising concerns over when a recent easing of apartment rents will show up in the US government's inflation data — and if the softening will hold.
The shelter component of the Consumer Price Index, which is mostly made up of rent and homeowners' equivalent rent (OER), rose 0.4% over the previous month, matching February’s month-over-month gain, according to Bureau of Labor Statistics data released Wednesday. Shelter costs rose 5.7% year over year, also flat from the previous month's annual increase.
“The monthly pace of shelter inflation has remained stubbornly elevated around 0.45% since last June despite market-based measures of rent growth cooling much more significantly over the past year,” Parker Ross, global chief economist at Arch Capital Group, told Yahoo Finance.
Ross said he expects “the BLS measure of rent inflation to cool and reflect some of the observed softness in rents, but we now have less conviction after little progress over the past nine months.”
Apartment rents softened last year by some metrics, and economists are expecting the trend to eventually show up in CPI data, which has a lag.
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Federal Reserve Chairman Jerome Powell said during a March press conference that housing inflation would start to trend lower, but there was some “uncertainty” on when that would happen.
“There's real confidence that they [lower housing costs] will show up eventually over time, but again, [there is] uncertainty about the exact timing,” Powell said.
Shelter costs accounted for 60% of March’s overall monthly gain in core CPI, which doesn't include food and energy, according to BLS.
Some Wall Street economists expect the shelter component of CPI to bottom out by spring or summer of next year based on how sticky the number has remained.
But there's concern that there are signs that the growth in rents is ticking back up this year.
“Given the shift in preference to the single-family rental market, we could see persistently elevated rent growth on the single-family side, which would put upside pressure over the medium term,” Ross said.
Don Rissmiller at Strategas Research Partners said rising immigration may push up rents as well.
“The labor supply boost from recent immigration has been welcome. But the flip side of that is there will be additional demand as well — and the question is whether we will have the housing over the next several years that the additional individuals will require,” Rissmiller told Yahoo Finance.
To be sure, March's annual gain in shelter costs was still down significantly from a peak of 8.2% in the same month a year ago.
Andy Schneider, senior US economist at BNP Paribas, told Yahoo Finance after the data's release that OER and rents to primary residence "are coming down, and when you look at some of the leading indicators like market rents or home price growth, both have been telling a story that CPI rents should continue to decelerate. And that's what we've seen so far this year and both are kind of pointing towards further moderation as we get deeper into the year as well."
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
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