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The growing cost of housing was singled out on Tuesday as the key contributor to inflation in January, according to new data from the Bureau of Labor statistics.
The Consumer Price Index, which measures how much Americans paid for consumer goods and services, rose 0.5 percent on a monthly basis between December and January and 6.4 percent on an annual basis, according to the latest Bureau of Labor Statistics data.
The 6.4 percent annual increase represents a slight cooling, and continues a downward trend since annual inflation peaked at 9.1 percent in June for the highest reading since 1981. But policy setters at the Federal Reserve said they still see multiple areas of concern, with several pricing index’s picking up their increases on a monthly basis.
“We see ourselves as having a lot of work left to do,” Fed Chair Jerome Powell said earlier in February.
The Federal Reserve has raised interest rates aggressively throughout the past year, and raised its benchmark rate to the highest level since 2007 in its efforts to lower inflation.
While inflation cooled it did not drop as low as expected, suggesting interest rate hikes will continue.
“While this is the smallest year-over-year price increase since October 2021, today’s report suggests that the downward trend in inflation may be bumpier than had hoped,” Dr. Lisa Sturtevant, chief economist at Bright MLS, said in a statement. “It means that the Federal Reserve will push forward with rate hikes through the spring, which will increase borrowing costs for consumers and businesses.”
The index that accounts for shelter costs was by far the highest contributor to the monthly increase, according to the Bureau of Labor Statistics. The shelter index increased 0.7 between December and January while the food index increased 0.5 percent monthly and the energy index increased 2 percent.
The index for rent and the index for the equivalent of rent each increased 0.7 percent monthly.
“The shelter index was the dominant factor in the monthly increase in the index for all items less food and energy, while other components were a mix of increases and declines,” the report reads.
Shelter costs are routinely the largest contributor to overall inflation on a monthly basis, though not always. In December 2022 the cost of gasoline was the largest contributor, while food and medical care have also routinely been listed alongside shelter as the largest contributor.
Inflation has been a key contributor to housing unaffordability over the past year, with many would-be buyers stymied by a combination of high inflation and high mortgage rates that are making homeownership unattainable for some. As the Federal Reserve hikes interest rates in their effort to tamp down inflation, they are in part making housing more expensive for those already burned by inflation.
“The Fed’s rate increases, which have led to higher mortgage rates, have made the cost of buying a home even more costly,” Sturtevant said.