Housing Costs Are Running Hot, but Is the Data Missing a Cooling Trend?

Pandemic disruptions may have muddled the measurement of home prices in inflation data. That could complicate the Fed’s course on interest rates.

The Federal Reserve may have a housing problem. At the very least, it has a housing riddle.

Overall inflation has eased substantially over the past year. But housing has proved a tenacious — and surprising — exception. The cost of shelter was up 6 percent in January from a year earlier, and rose faster on a monthly basis than in December, according to the Labor Department. That acceleration was a big reason for the pickup in overall consumer prices last month.

The persistence of housing inflation poses a problem for Fed officials as they consider when to roll back interest rates. Housing is by far the biggest monthly expense for most families, which means it weighs heavily on inflation calculations. Unless housing costs cool, it will be hard for inflation as a whole to return sustainably to the central bank’s target of 2 percent.

Ben Casselman | NYT

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