Inflation and Housing Costs Display Encouraging Trends
As we step into spring, there's a refreshing sense of optimism in the air!
Recent data reveals that both the overall inflation rate and housing costs are beginning to cool down in March. This positive shift signals a brighter future for the economy and housing market, providing much-needed relief for homebuyers and renters alike.
March 2023 saw a slowdown in the overall inflation rate and housing costs, with the shelter index experiencing its smallest monthly gain since November 2022.
Housing remained the largest contributor to inflation, accounting for over 60% of the increase when excluding food and energy.
Federal Reserve's Limited Influence on Housing Costs
Rising housing costs are primarily driven by a lack of affordable supply and increasing development costs, limiting the Federal Reserve's ability to address them.
More housing supply is the key to curbing housing inflation.
Fed Tightening and Housing Supply
Further tightening of monetary policy by the Fed may increase acquisition, development, and construction (AD&C) financing costs, potentially hurting housing supply.
Despite policy tightening, shelter costs are expected to decline later in 2023, according to the NAHB forecast.
Consumer Price Index (CPI) Trends
The Bureau of Labor Statistics reported a 0.1% increase in the CPI in March, following a 0.4% rise in February.
The index for shelter rose by 0.6% in March, after a 0.8% increase in February.
Owners' Equivalent Rent (OER) and Rent of Primary Residence
Both OER and rent of primary residence increased by 0.5% in March.
OER has averaged a 0.6% increase over the last three months, significantly contributing to headline inflation.
Annual Inflation Rates
In March, the CPI rose by 5% over the past 12 months, the slowest annual gain since May 2021, following a 6% increase in February.
Core CPI increased by 5.6% over the past year, while the food index rose by 8.5%, and the energy index fell by 6.4%.
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