Consumer prices in November experience the smallest year-over-year increase since December 2021. Inflation, while still elevated, experienced its second month below an 8% annual growth rate since February 2022, according to an analysis by the NAHB. Shelter prices, however, continued to rise at an accelerated pace and more than offset decreases in energy prices in November.
Shelter inflation will primarily be cooled in the future via additional housing supply. As inflation appears to have peaked and continues to slow, this may ease some of pressure on the Fed to maintain a more aggressive monetary policy.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.1% in November on a seasonally adjusted basis, following an increase of 0.4% in October. The price index for a broad set of energy sources fell by 1.6% in November as the gasoline index (-2.0%), the natural gas index (-3.5%) and the electricity index (-0.2%) all declined. Excluding the volatile food and energy components, the “core” CPI increased by 0.2% in November, following an increase of 0.3% in October. This is the smallest monthly increase since August 2021. Meanwhile, the food index increased by 0.5% in November with the food at home index also rising 0.5%. Most component indexes continued to increase in October.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.6% in November, following an increase of 0.8% in October. The indexes for owners’ equivalent rent (OER) increased by 0.7% and rent of primary residence (RPR) increased by 0.8% over the month. Monthly increases in OER have averaged 0.7% over the last three months. More cost increases are coming from this category, which will maintain pressure on inflationary forces in the months ahead. These higher costs are driven by lack of supply and higher development costs. Higher interest rates will not slow these costs, which means the Fed’s tools are limited in addressing shelter inflation.
