Shelter Inflation Eases to 3% as Rent Index Rises 2.7%

Housing costs continued to cool in the federal government's latest inflation report, even as a jump in gasoline prices kept overall inflation elevated. The Bureau of Labor Statistics released its Consumer Price Index for August on September 11.

The housing numbers

The CPI shelter index, which covers rent, owners' equivalent rent and lodging away from home, rose 0.3% in August after a 0.1% increase in July. Over the past 12 months, shelter costs increased 3.0%, down from 3.2% in July, according to Trading Economics.

The rent of primary residence index, the measure most directly tied to what tenants pay, rose 0.2% in August on a seasonally adjusted basis. It had risen 0.1% in June and 0.3% in July. Over the year ending in August, the index was up 2.7% before seasonal adjustment, according to BLS detailed tables. Owners' equivalent rent, an estimate of what homeowners would pay to rent their own homes, rose 0.2% for the month and 3.1% over the year.

The swings in the overall shelter index this summer were driven partly by hotel and other short-term lodging prices, which are volatile. According to the BLS tables, the lodging-away-from-home index fell 2.8% in July before rising 2.4% in August, which helps explain why shelter rose only 0.1% in July even as rent climbed 0.3%. For tenants, the rent index is the more useful guide.

Gas, not rent, drove inflation

Overall, the all-items CPI rose 0.4% in August and 3.4% from a year earlier, the same annual rate as July. Trading Economics reported that gasoline prices were up 27.4% year over year and fuel oil prices rose 52%. Core inflation, which excludes food and energy, slowed to 2.4%, the lowest reading since March 2021.

That means rent increases are now running below the overall inflation rate. For renters, the cost of a lease is rising more slowly than many other parts of the budget, but higher fuel and transportation costs are cutting into household budgets from another direction.

Why the CPI lags the market

The CPI rent index tracks what all renters pay, including people who renewed leases signed a year or more ago. Private trackers such as Zillow and Apartment List focus on newly listed or newly signed leases, so they move faster. That is why the CPI's 2.7% rent reading is above Apartment List's slightly negative annual change but close to Zillow's measure of asking rents, which rose 2.5% over the year in August.

Because shelter is the largest category in the CPI, its gradual cooling helps hold down core inflation, which matters for Federal Reserve decisions on interest rates. Lower rates could eventually make homebuying more affordable and ease pressure on the rental market.

Zillow also noted in its August report that nearly 40% of rental listings on its site offered a concession, a sign that landlords in many markets are still competing for tenants even as headline rent growth edges up.

What it means for renters

• Use the numbers when your renewal arrives. If a landlord proposes an increase well above 3%, it is fair to point out that national rent inflation is running around 2.7% and ask how the figure was set.
• Check local rules. Some state and local rent caps are tied to CPI. In those places, cooler inflation can mean a lower maximum allowed increase on your next renewal.
• Budget for non-rent costs. With energy prices up sharply, ask whether utilities are included in your rent and how they are billed before you sign.
• Remember averages hide local swings. National rent inflation of 2.7% includes metros where rents are falling and others where they are climbing fast.

The BLS will publish September CPI data in October, which will show whether shelter inflation keeps easing into the fall.