Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please make a short essay for me about this economic-related article. There were no guide questions provided so it's more of a free topic discussion.

Please make a short essay for me about this economic-related article. There were no guide questions provided so it's more of a free topic discussion.

image text in transcribedimage text in transcribed
This copy is for you r personal, non-comme rcial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 orvisit wwwdjreprintscom. https://www.wsj.com/a rticles/climbing-housing-costs-could-prop-up-inflation-for-a-while-11663641828 ECONOMY CTmbing Housing Costs Could Prop Up Ination for a While Economists say rents will eventually moderate. Question is when? By David Harrison Updated Sept. 20, 2022 2144 pm ET Rents and other shelter costs are emerging as a major driver of overall consumer ination, keeping it high at a time when many other sources are starting to ease. Economists expect housing ination to strengthen further before cooling off in the coming months, but are unsure of when relief will appear. This creates another challenge for the Federal Reserve as it raises interest rates to reduce price pressures. Overall annual ination eased to 8.3% in August from 8.5% in July, according to the Labor Department's consumer- price index. That reected declines from the month before in prices for items such as gasoline, airfares and used cars, and slower price increases in other categories, such as groceries. Housing was an outlier. Not only are shelter costs rising, they are climbing at an accelerating pace, accounting for a growing share of the overall ination rateabout 25% of August's rate, up from about 20% in February. Shelter costscomprising mostly rents and a gauge of home prices known as owners' equivalent rentrose 0.7% in August from the previous month, up from 0.5% in July. They rose 6.2% in August from a year before, up from 5.7% in July. The price of housing \"was always going to be a persistent boost to ination this year,\" said Omair Sharif, head of the advisory rm Ination Insights LLC. \"It has absolutely ticked up over the last three months and it is offsetting declines in things like airfares and hotel rates.\" Fed ocials have raised interest rates this year at the fastest clip in decades to combat ination, which hit a 40- year high in June. They are widely expected to lift rates by 0.75 percentage point after their two-day policy meeting concluding on Wednesday. That would be the third consecutive increase of that size. Rising housing costs also increase the chances that the Fed will raise interest rates by 0.75 percentage point again at its November policy meeting, economists at Barclays wrote in a report for clients. Economists and rms tracking private data expect housing ination in the CPI to cool eventually because the rent increases they see in new leases appear to be slowing. That should show up in the CPI with a lag because of the way it is constructed, they sayMost of the time, most renters pay the same price every month, while those who renew their lease or sign new ones are more likely to see an increase. Private rms, such as Apartment List Inc., which tracks rental prices, record only the rent amounts in new leases. By this method, the median U.S. rent increased 10% in August from the previous year, down from a recent peak of 18% in November 2021, according to data from Apartment List. The CPI '5 rent component, in contrast, is estimated based on rents paid across the market, which includes rents raised months ago. Home prices surged during the pandemic, boosted by low mortgage rates, changes in homebuying preferences, population trends and low inventories of homes for sale. But government agencies don't take home prices directly into account when calculating ination because they consider a home purchase to be a long-term investment rather than a consumer good. Instead, the CPI uses rents to create its estimate of homeowners' housing costscalled owners' equivalent rentwhich calculates the imputed rent, or what homeowners would have to pay each month to rent their own house. Because rents rose strongly over the past year, those increases are now feeding into the CPI and other ination measures. The private estimates offer hope that housing ination in the CPI will slow at some point, said Igor Popov, chief economist at Apartment List. \"On the one hand there's some condence that the shelter component of CPI is not going to completely run away from us,\" he said. \"On the other hand, there's a growing concern that in the meantime, the shelter component's really propping up ination at a time when these numbers are under a microscope.\" Mr. Sharif said shelter cost increases should begin to cool either in the fourth quarter of 2022 or the rst quarter of 2023. Barclays economists say it will happen this fall. Brett Ryan, senior economist at Deutsche Bank, estimates the peak won't come until the second quarter of next year. Economists at the Dallas Fed said in a paper published last month that they see a lag time of up to a year and a half between when market rents start to fall and when that decline shows up in the CPI

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Micromotives And Macrobehavior

Authors: Thomas Schelling

1st Edition

0393329461, 9780393329469

More Books

Students also viewed these Economics questions

Question

The number of people commenting on the statement

Answered: 1 week ago

Question

Peoples understanding of what is being said

Answered: 1 week ago