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    Housing Costs Cool, but Remain a Source of Concern

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    Overall inflation cooled sharply last month, but one of the most important categories of consumer prices — housing — remained stubborn.Housing costs, as measured in the Consumer Price Index, were up 5.4 percent in May from a year earlier. That was the smallest increase in more than two years, down from a peak rate of more than 8 percent in 2023.But on a month-to-month basis, housing costs were up 0.4 percent in May for the second month in a row, defying forecasters’ hopes for a continued slowdown. Over the past three months, shelter costs have risen at an annual rate of 5.2 percent.Housing is by far the largest monthly expense for most families, and therefore also weighs heavily in inflation calculations, accounting for more than a third of the Consumer Price Index. That means it will be hard for the Federal Reserve to bring inflation fully under control as long as housing costs continue to rise at their recent rate. Before the pandemic, the shelter index rose at a rate of about 3.5 percent per year.Forecasters have been expecting housing inflation to cool because data from private companies like Zillow and Apartment List have shown rents rising more slowly or even falling outright in some parts of the country. (Inflation measures use rent data to calculate housing costs for both renters and homeowners.)The rent index used in the Consumer Price Index tends to move more slowly than the private-sector measures because of methodological and conceptual differences. The private measures, for example, include rents for homes only when they turn over to new tenants; the government’s measure tries to capture monthly expenses for all renters, including those who renew their leases.Still, economists have been surprised by how long the gap between the measures has persisted. Some of them have begun to worry that the pandemic, demographic shifts or other forces might have caused changes in the housing market that would keep housing inflation — at least as measured in the Consumer Price Index — elevated for an extended period.Adding to that concern: Private-sector rent measures have shown signs of picking up again recently as a boom in new apartment construction has faded.“I think that the multifamily market will see continued rents decelerate, but we won’t see rents declining nationally,” said Ivy Zelman, co-founder of Zelman and Associates, a housing research firm. More

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      Rents Are Falling. So Why Isn’t That Showing Up in Inflation Data?

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      Pandemic disruptions may have muddled the measurement of home prices in government 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.“If you want to know where inflation is going, you need to know where housing inflation is going,” said Mark Franceski, managing director at Zelman & Associates, a housing research firm. Housing inflation, he added, “is not slowing at the rate that we expected or anyone expected.”Those expectations were based on private-sector data from real estate websites like Zillow and Apartment List and other private companies showing that rents have barely been rising recently and have been falling outright in some markets.For home buyers, the combination of rising prices and high interest rates has made housing increasingly unaffordable. Many existing homeowners, on the other hand, have been partly insulated from rising prices because they have fixed-rate mortgages with payments that don’t change from month to month.Housing prices and mortgage rates don’t directly show up in inflation data, however. That’s because buying a home is an investment, not just a consumer purchase like groceries. Instead, inflation data is based on rents. And with private data showing rents moderating, economists have been looking for the slowdown to appear in the government’s data, as well.The Housing ConundrumHousing costs, as measured in the Consumer Price Index, are still rising faster than before the pandemic, even as overall inflation has eased.

      Source: Labor DepartmentBy The New York TimesA Wider GapAfter surging in 2021 and 2022, rent growth has moderated. But the slowdown has been more gradual for single-family homes than for apartments.

      Notes: Data is shown as a 12-month change in a three-month moving average. “Houses” include both attached and detached single-family homes.Source: ZillowBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      A Hot CPI Report Forces a Rethink of Chances of a Soft Landing

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      Worries of higher-for-longer interest rates have grown since Tuesday’s Consumer Price Index report.A hotter-than-expected inflation report has stoked new concerns that a “soft landing” may be out of reach.Michael M. Santiago/Getty Images“No landing” Markets are still on edge after Tuesday’s hot inflation report, as Wall Street suddenly and sharply discounted the odds of imminent interest rate cuts.It has also poured cold water on the belief among many investors that the U.S. economy will achieve a “soft landing.”Why so gloomy? The Consumer Price Index report, which came in above economists’ forecasts, is a stark reminder of the challenges that the Fed faces in bringing down inflation to its 2 percent target. Even after excluding volatile energy and food prices, inflation is holding roughly steady and is well above where the central bank feels comfortable.Shelter costs, including rents, also rose above expectations, and “supercore inflation,” a measure the Fed closely follows that includes common “services” expenditures — like haircuts and lawyer fees — rose 4.3 year-on-year, its highest level since May, according to Deutsche Bank data.Markets responded with a jolt. Investors dumped Treasury notes on Tuesday amid concerns that the Fed will keep borrowing costs higher for longer. That pushed the Russell 2000 down nearly 4 percent, its worst slide in 20 months. (That said, S&P 500 futures were rebounding slightly on Wednesday morning as dip-buyers returned, and Britain reported milder-than-expected inflation data that pushed up stocks in London.)The futures market on Wednesday is pricing in three to four interest rate cuts this year, down from the six to seven projected at the start of the year and all but silencing rate-cut bulls. Such predictions “made no sense in our view,” Mohit Kumar, an economist at Jefferies, wrote in a research note.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Latest CPI Report Is a Crucial Inflation Report Card

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      Investors and the White House will pore over the latest Consumer Price Index report for clues on prices — and potential interest rate cuts.Wall Street and the White House will be looking for inflation clues as they tune in to today’s Consumer Price Index report.Spencer Platt/Getty ImagesInflation back in the spotlight An S&P 500 on a five-week winning streak. A growing economy. Solid wage gains. And growing consumer and business optimism. These are the ingredients for an emerging Goldilocks scenario for the U.S. economy.What would help complete that recipe? Cooling inflation, which would stoke investor hopes that the Fed would soon lower borrowing costs. (That said, Fed officials continue to warn that it’s still too early to talk rate cuts.)The prospects of that economic ideal will be tested on Tuesday with the release of fresh Consumer Price Index data.Here’s what to expect: Economists have forecast a headline C.P.I. reading of 2.9 percent for January on an annualized basis, its smallest gain since April 2021. Core C.P.I., which strips out food and fuel prices, is expected to come in at 3.7 percent on an annualized basis, down from 5.6 percent in January 2023 — strong progress, but well above the Fed’s 2 percent target.There are reasons for caution, however. The slowdown has been driven by goods disinflation and lower energy prices. But economists are closely monitoring how attacks by Houthi rebels on ship traffic in the Red Sea could affect commerce costs and push up oil prices.The cost of crude oil has climbed since the start of the year, though it remains well below the levels hit in the aftermath of the Hamas-led attacks Oct. 7.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Why Americans Are (Still) Mad About Inflation

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      The United States has seen a steady decline in the rate of inflation, and yet many American voters are still upset over the cost of daily life. To understand this perception gap, Paul Donovan, the chief economist of UBS Global Wealth Management, argues, we should consider the cost of a Snickers Bar. In this audio essay, he explains that frequent smaller purchases — like candy bars — shape our experience of the economy.(A full transcript of this audio essay will be available midday on the Times website.)Illustration by Akshita Chandra/The New York Times; Photograph by Matt Cardy/Getty ImagesThe Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.Follow the New York Times Opinion section on Facebook, X (@NYTOpinion) and Instagram.This episode of “The Opinions” was produced by Jillian Weinberger. It was edited by Kaari Pitkin and Annie-Rose Strasser. Mixing by Sonia Herrero and Pat McCusker. Original music by Carole Sabouraud. Fact-checking by Kate Sinclair. Audience strategy by Kristina Samulewski. More

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      The Snickers Bar Is the Economic Indicator We Need

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      The United States has just experienced one of the biggest collapses in consumer inflation in modern history. In June 2022 consumer prices had risen 9.1 percent over the previous year. By December 2023 the rate of increase had slowed to 3.4 percent. And yet, in survey after survey, voters still declare inflation to be at or near the top of their list of concerns.Why aren’t voters recognizing the decline in the inflation rate? Because voters are humans, and humans don’t think about inflation rationally. To understand why, let’s look at a Snickers bar.More than 12 Snickers bars are sold every second in the United States. That makes Snickers bars a very important part of consumer purchases, and so the price of a Snickers bar should be included in the inflation calculation. Yet Snickers bars do not consume a big portion of most families’ annual budget (at least they usually don’t).Most of us will spend far more of our budget on something like a television. With $1,500 a consumer could buy a high-end 55-inch television, or almost four Snickers bars a day for a year. Because items in the consumer price basket are weighted, roughly, by how much money consumers spend on that item in a year, television prices are more important than Snickers bars in the calculation of inflation.However, we probably buy a Snickers bar much more frequently, perhaps even daily. So we’re much more likely to remember the price of the Snickers bar and forget the price of the television we bought last year. Consumers tend to think only about the prices of high-frequency purchases — food for the family and fuel for the S.U.V.The different inflation rates for infrequent and frequent purchases is a big part of why consumers mistakenly believe inflation is higher than it actually is. The prices of more expensive goods like furniture and consumer electronics are actually falling — and have been falling for over a year. Once the post-pandemic surge in demand for electronics, furniture and similar items faded, manufacturers were unable to maintain higher prices, pulling the reported inflation numbers lower.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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      Inflation Is Moderating, but Pressure Remains on Biden

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      President Biden has yet to benefit from moderating inflation, and data set for release on Thursday could complicate the White House’s attempts to show progress on rising prices.The Consumer Price Index is expected to show that overall inflation climbed slightly more quickly in December than in November on a yearly basis.Yet “core” inflation — a key measure that strips out volatile food and energy prices — is expected to have climbed 3.8 percent over the year through December, down from 4 percent in November. If that happened, it would be the first time that the core index had dropped below 4 percent since May 2021.But that moderation has not stopped Mr. Biden’s rivals from using high prices as a cudgel to criticize his economic stewardship.This week, former President Donald J. Trump, the front-runner for the Republican presidential nomination, blamed Mr. Biden for rising prices as he campaigned in Iowa before Monday’s caucuses there.“Our Middle Class is being crushed by Biden’s crippling inflation,” Mr. Trump said on the website Truth Social.Polls have shown that voters have a downbeat view of Mr. Biden’s economic record. Despite a strong labor market, higher costs and interest rates have left Americans feeling poorer.The politics of inflation have also infiltrated the Republican primary race, with Mr. Trump’s leading rivals, Gov. Ron DeSantis of Florida and Nikki Haley, the former United Nations ambassador, suggesting that Mr. Trump’s big spending policies when he was president set the stage for higher prices.“When it comes to our economy and getting inflation under control, the first thing we need to do is claw back the over $100 billion of unspent Covid dollars that are still out there,” Ms. Haley said during a town hall hosted by CNN this week.Mr. DeSantis, at a Fox News town hall this week, blamed lawmakers from both parties for borrowing too much money during the pandemic, but said rising incomes in his state were helping people cope with “Biden inflation.”Senior Biden administration officials are hopeful that as inflation moderates, voters will feel better about the economy.“The Biden administration is doing everything it can to lower costs that affect Americans,” Treasury Secretary Janet L. Yellen told reporters at an event in Virginia on Monday. “I think sentiment will improve over time.” More

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      Global Markets Cheer on Better Than Expected Inflation Data

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      A better-than-expected Consumer Price Index report triggered a big surge in stocks and bonds, as investors bet that interest rates will begin to fall.Upbeat investors see Tuesday’s inflation data as a possible turning point in the Fed’s battle against soaring prices.Michael M. Santiago/Getty ImagesGood news for global markets Yesterday’s impressive rally in U.S. stocks and bonds has gone worldwide this morning, as investors see central banks making gains in their fight against inflation. Adding to the good news was a breakthrough in the House last night that could avert a government shutdown.S&P 500 futures signal further gains at the opening bell. The question now is whether this represents a false dawn on inflation, or the start of a durable decline in rising costs — and interest rates.Here’s what’s exciting investors: Yesterday’s cooler-than-expected Consumer Price Index data has shifted discussion in the markets from potential interest rate hikes to cuts, and what that might mean for stocks. President Biden, whose poll ratings have been hurt by inflation, also cheered the numbers.Other promising data points came out this morning. Inflation in Britain fell to its lowest level in two years. And consumer spending and industrial output in China rebounded last month, a hopeful sign for the world’s No. 2 economy.Market optimists have moved up their bets on rate cuts. Futures markets this morning pointed to the Fed starting to lower borrowing costs by May, sooner than previous estimates of closer to the end of 2024.Less aggressive is Mohit Kumar, the chief financial economist at Jefferies, who wrote today that big rate cuts would begin after the presidential election next year. Jefferies predicts the Fed’s prime lending rate going to 3 percent by the end of 2025 from its current level of 5.25 to 5.5 percent.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.We are confirming your access to this article, this will take just a moment. However, if you are using Reader mode please log in, subscribe, or exit Reader mode since we are unable to verify access in that state.Confirming article access.If you are a subscriber, please  More

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      Will It Be Morning in Joe Biden’s America?

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      If the midterm elections could be rerun this month, Democrats would probably end up in full control of Congress. President Biden’s approval ratings are rising. Inflation is down, and consumers are feeling more optimistic. And Americans are getting a better look at the G.O.P.’s actual policy agenda, which is deeply unpopular.OK, we don’t give politicians who lost an election the opportunity for a mulligan, even when they falsely claim that the election was stolen. But it is, I think, worth noting just how much the economic and hence political environment has shifted in the past few months, and to start thinking seriously about the possibility that Democrats might be in a startlingly strong position next year.It’s hard to overstate how bad things looked for Biden’s party on election eve. The last report on consumer prices released before the midterms showed inflation of 8.2 percent over the previous year, a terrible number by anyone’s reckoning. The unemployment rate was still very low by historical standards, but the news media was full of warnings about hard times ahead, and a large majority of likely voters believed (falsely) that we were in a recession.Given the perceived grimness of the economic environment, Republicans and many political analysts confidently expected a huge electoral red wave.Why didn’t that happen? Part of the answer may be that Americans weren’t feeling as bad about the economy as some surveys suggested. It’s true that the venerable University of Michigan index of consumer sentiment had fallen to levels last seen in the aftermath of the 2008 financial crisis, during the worst slump since the Great Depression.But the Michigan index was probably distorted by partisanship: Did Republicans really believe, as they claimed, that the economy was worse than it had been in June 1980? (Back then the economy actually was in a recession, inflation was 14 percent, and unemployment was above 7 percent.)And another longstanding index of consumer confidence, from the Conference Board, was telling a quite different story, with consumers feeling pretty good about the economy. I’m not sure why these measures were so different, but the Conference Board measure seemed to do a better job of predicting the vote — although the backlash over Roe v. Wade, and against some terrible Republican candidates, surely also played a role.In any case, in mid-January — a bit over two months after the election, but three consumer price reports later — things look very different. There’s still no recession. Consumer prices actually fell in December; more to the point, they’ve risen at an annual rate of only 2 percent over the past six months.And while consumer expectations haven’t caught up with financial markets, which appear to believe that inflation will stay low for the foreseeable future, consumer expectations of inflation are back down to their levels of a year and a half ago.Which raises a question few would have asked even a few months ago: Is Joe Biden — who, for the record, had a much better midterm than Ronald Reagan did in 1982 — possibly headed for a “morning in America” moment?A few months ago I looked at the “misery index” — the sum of unemployment and inflation, originally suggested by Arthur Okun as a quick-and-dirty summary of the state of the economy. I used to think this index was silly; there are multiple reasons it shouldn’t make sense. But it has historically done a surprisingly good job of tracking consumer sentiment. And as I noted even then, the misery index seemed to be declining.Well, now it has fallen off a cliff. If we use the inflation rate over the past six months, the misery index, which stood at 14 as recently as June, is now down to 5.4, or about what it was on the eve of the pandemic, when Donald Trump confidently expected a strong economy to guarantee his re-election.Nor is that the only thing Democrats have going for them. The green energy subsidies in the Inflation Reduction Act are leading to multiple new investments in domestic manufacturing; it’s unclear how many jobs will be created, but the next two years will give Biden many opportunities to preside over factory openings, giving speeches about how America is, um, becoming great again.Now, I’m not predicting a Democratic blowout in 2024. For one thing, many things can happen over the next 22 months, although I don’t think Republicans, even with cooperation from too many in the media, will convince Americans that the Biden administration is riddled with corruption. For another, elections often turn not so much on how good things are as on the perceived rate of improvement, and with inflation and unemployment already low, it’s not clear how much room there is for a boom.Also, extreme political polarization has probably made landslide elections a thing of the past. Republicans could probably nominate George Santos and still get 47 percent of the vote.But to the extent that the economic landscape shapes the political landscape, things look far better for Democrats now than almost anyone imagined until very recently.The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram. More