Housing Costs Expected to Keep Inflation Elevated Through 2022
Washington, DC, July 12, 2022-Climbing housing costs are set to keep inflation elevated this year, creating another challenge for Federal Reserve officials who want to see signs that price pressures are easing before slowing their interest-rate increases, reports the Wall Street Journal.
“Overall annual inflation rose to 8.6% in May, while core inflation, which excludes volatile food and energy costs, hit 6%, according to the Labor Department’s consumer-price index. The June figures are set to be released Wednesday.
“Rising fuel costs and supply-chain disruptions from Russia’s war against Ukraine added to inflation that was already high due to surging demand from the economy’s reopening and aggressive government stimulus. Annual housing inflation, as measured in the CPI, hit a recent low in early 2021 at 1.4% and it has since rebounded, to 5.4% in May, well above the annual average of 3.5% between 2015 and 2019.
“Housing inflation is important because it represents around two-fifths of core CPI and one-sixth of the Fed’s preferred inflation gauge, the personal-consumption expenditures price index.
“Fed officials raised their benchmark interest rate by 0.75 percentage point last month, and they have signaled that they are likely to do so again at their July 26-27 meeting. They have indicated they could slow the pace of rate rises to half-point increments after that, but they want to see convincing evidence that inflation is slowing before moving down to more traditional quarter-point rate rises.
“Recent data have suggested consumer spending could be shifting away from goods, which saw big price increases last year, and toward services. Central bankers have hoped this transition would ease overall price pressures. But if inflation pressures intensify in the services sector, that would offer less relief.”