Inflation Research Brief

October 24, 2023

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Elevated Services Costs Stymie Fed’s Bid to Rein in Core Inflation

Rising shelter prices keep core inflation high. The average 30-year fixed-rate mortgage climbed above 7.5 percent in October, marking a 23-year peak. Previous Federal Reserve actions have increased interest rates, which — in conjunction with higher home prices — have resulted in more expensive housing costs. The shelter index lifted 7.2 percent year-over-year in September, driven by the owner’s equivalent rent segment increasing in that month. This component surveys how much homeowners would accept to rent their own residences, capturing more costly ownership expenses and still-elevated home values. Higher prices for single-family housing, as well as a lack of for-sale inventory entering the market, underscore the long-term cost benefit of renting an apartment. Comparatively lower expenses and greater availability among multifamily rentals will capture some of the single-family demand, helping curb this component of services inflation over time.

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