New Cleveland Fed data points to easing shelter inflation outlook
4:56 pm Tuesday, December 20th, 2022
By Michael S. Derby
NEW YORK (Reuters) – New data from the Cleveland Federal Reserve tracking housing sector inflation suggests one of the key drivers of soaring prices could be less of a problem going forward.
The bank said in a report released on Monday that it had launched new indexes tracking rental price changes for new and existing tenants. The research noted that housing-related factors are a major component of the government’s monthly Consumer Price Index, with shelter costs making up nearly a third of that closely watched report.
According to the bank, the year-over-year change in the index for new renters stood at a 6.03% rise in the third quarter, decelerating from the 11.88% year-over-year change seen the prior quarter. The first-quarter year-over-year change in the index was also strong at 11.53%.
The researchers said that with their new data series, they are trying to cut through and reconcile the widely varying readings seen for existing measures of shelter costs changes. They said one of the biggest reasons for divergent readings is measuring rental changes for all tenants versus new ones.
The bank said that in the third quarter rental price increases for all tenants stood at a 6.4% year-over-year change, near that of the new tenants that quarter. In the second quarter, all tenants faced a year-over-year change of 5.94%, well under the level of increase faced by the new tenants for that period.
The Cleveland Fed data gives fresh hope that moderating inflation trends seen in recent data will continue. That’s in part because the bank noted that rental price increases faced by new tenants front run that of all tenants by about a year, which means the shelter-related pipeline for higher rental prices is cooling off.
The Fed is raising rates aggressively to help lower the highest levels of inflation seen in decades, delivering a half percentage point increase last week, while projecting more increases into next year.
At the press conference following the Fed meeting, central bank leader Jerome Powell said he sees the rental price surge process resolving itself slowly.
“As rents expire and have to be renewed, they’re going to be renewed into a market where rates are higher than they were when the original leases were signed,” he said, adding “the rate for new leases is coming down, so, once we work our way through that backlog, that inflation will come down sometime next year.”
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
