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Inflation may be easing, but October’s 7.7% increase in the U.S. consumer-price index compared with a year earlier was still being driven largely by higher shelter costs.

Consumer prices rose 0.4% from September, with more than half of that hike attributable to a 0.8% boost in the shelter index — the biggest monthly increase seen since August 1990, according to data released Thursday morning by the Bureau of Labor Statistics. 

See: U.S. inflation shows signs of easing, perhaps giving Fed ammo to go slower

That index, which includes rent, owners’-equivalent rent and lodging away from home, and constitutes about a third of the consumer-price-index basket, is also up 6.9% overall from a year ago. 

Yet it’s not all bad news for tenants. Rents may be 7.5% higher compared with a year ago, as Labor Department data show, but monthly increases in rents and owners’-equivalent rents slowed a bit in October. 

“The fever appears to be breaking in rents, a few months earlier than we expected,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note Thursday. “Weighted primary and owners’ equivalent rents rose by 0.64%, the smallest increase since May, and consistent with the sudden reversal in most measures of private sector rents.”

“The transmission from falling market rents for new tenants to the CPI is gradual, so we are hopeful of a further clear softening over the next few months,” Shepherdson added.

Indeed, rent-price growth is slowing, even if tenants are still feeling the burn of prices above their levels before the onset of the coronavirus pandemic. Jeff Tucker, a senior economist at Zillow, said in a report last week that the company’s Zillow Observed Rent Index, an indicator for future rent inflation, peaked in terms of year-over-year growth in February. 

It’ll take a while for that to appear in the consumer-price index. Since researchers at the Federal Reserve Bank of San Francisco found the strongest correlation between CPI data and Zillow Observed Rent Index at a 12-month lag, it follows that February of next year would be the “natural candidate for the most likely turning point in CPI rent inflation,” Zucker said. 




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