Inflation may be falling, but one of the most important costs to household budgets — and the economy — unexpectedly jumped in July.

The cost of shelter rose 0.4% in July from June and is up 5.1% over the year, the Bureau of Labor Statistics said in its Consumer Price Index (CPI) report Wednesday. The uptick was double the 0.2% monthly increase in June and 澳洲幸运5官方开奖结果体彩网:surprised forecasters, who have 澳洲幸运5官方开奖结果体彩网:long expected housing 🔯in✤flation to cool. Shelter costs were responsible for almost 90% of the overall inflation in July, since they account for the largest portion of the “basket of goods” that the CPI measures.

The rebound in the cost of shelter was a setback in a report that otherwise showed 澳洲幸运5官方开奖结果体彩网:inflation pressures easing. Many economists still expect housing costs to fall in the coming months, pushing overall inflation down, because separate data show rent increases have slowed dramatically in recent years. 

Stubborn housing inflation has implications for how the Federal Reserve could move its key fed funds rate, which influences borrowing costs on all kinds of loans.

Better Late Than Never?

Because of the way housing costs are measured in the surveys that inform the index, changes in asking rents can take more than a year to show up.

“While shelter inflation is on a disinflationary path, it is a highly lagged input into CPI so its contributions don’t reflect the current slowdown we’re seeing in the housing market,” Ralph McLaughlin, senior economist at Realtor.com, wrote in a commentary. “We anticipate that as the shelter pig works its way through the CPI python, we’ll conti🍨nue to get better readings th🐷rough the remainder of the year.”

The “shelter” category includes rent, hotels, and a statistic called 澳洲幸运5官方开奖结果体彩网:Owners Equivalent Rent, which measures home ownership costs by asking homeowners how 🐠much they would rent their house out for if it was on the market. 

Rents surged as the economy reopened from the COVID-19 pandemic, but the increases started to decelerate in 2022. The Zillow Observed Rent Index, which measures rent based on what landlords are charging new tenants, was up 3.4% over the year as of July, down significantly from the double-digit yearly increases in 2021 and 2022.

The slowdown of rent increases as measured by Zillow and other data providers has some economists convinced that July’s jump in shelter costs is just a statistical blip and that the long-term trend is still a healthy deceleration.

“We view the st💃rength in rents as noise because all other rental measures are increasingly pointing in the opposite direction, suggesting rental inflation iཧn the CPI will eventually come down, and that could be quite sharp,” Ali Jaffrey, an economist at CIBC, wrote in a commentary. 

Housing Inflation Could Influence The Fed

Financial markets have priced in a 100% chance the Fed will cut the rate when the central bank’s policy committee 澳洲幸运5官方开奖结果体彩网:next meets in September, according to the CMEౠ Group’s FedWatch tool, wh🍨ich forecasts rate movements based on fed funds futures trading data.

However, there’s more uncertainty about how fast the Fed will cut rates.

The jump in housing costs helped raise the chances the Fed would cut the rate by 0.25 percentage points from its current range of 5.25% to 5.5%, rather than the half-point drop that markets had anticipated earlier in the week, CME's data showed.