NEW YORK (Reuters) – New data from the Cleveland Federal Reserve tracking housing sector inflation suggests that one of the key drivers of rising prices may be less of a problem going forward.
In a report released on Monday, the bank said it has launched a new index 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 the cost of shelter accounting for nearly a third of that closely watched report.
According to the bank, the year-over-year change in the index for new renters increased by 6.03% in the third quarter, which was lower than the 11.88% year-over-year change in the previous quarter. The year-over-year change in the index was also strong at 11.53% in the first quarter.
The researchers said that with their new data series, they are trying to truncate and reconcile the widely varying readings for existing measures of changes in shelter costs. One of the biggest reasons for the different readings is measuring the change in rent for all tenants versus new tenants, he said.
The bank said rental prices changed 6.4% year-over-year for all tenants in the third quarter, which was close to that of new tenants in that quarter. In the second quarter, all tenants experienced a year-over-year change of 5.94%, which was just below the level of growth experienced by new tenants for that period.
Data from the Cleveland Fed gives fresh hope that the soft inflation trend seen in recent data will continue. This is partly because the bank notes that new tenants are facing rental price increases about a year earlier than all tenants, meaning they are more likely to pay for higher rental prices. The pipeline related to the shelter is cooling down.
The Fed has been raising rates aggressively to help stem the highest levels of inflation seen in decades, increasing by half a percentage point last week, while forecasting more increases next year.
In a news conference after the Fed meeting, central bank leader Jerome Powell said he sees a gradual resolution of the process of raising rent prices.
“The rents are expiring and they have to be renewed, they’re going to be renewed in a market where the rates are higher than when the original leases were signed,” he said, adding that the rates for the new leases are lower. So, once we work our way through that backlog, inflation will come down sometime next year.”
(Reporting by Michael S. Darby; Editing by Andrea Ricci)
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