Inflation Shows Further Signs of Cooling
Consumer prices in March saw the smallest year-over-year gain since May 2021 with a ninth consecutive month of a deceleration.
Consumer prices in March saw the smallest year-over-year gain since May 2021 with a ninth consecutive month of a deceleration. While the shelter index (housing inflation) experienced its smallest monthly gain since November 2022, it continued to be the largest contributor to the total increase, accounting for over 60% of the increase in all items less food and energy.
The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline later in 2023.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.1% in March on a seasonally adjusted basis, following an increase of 0.4% in February. The price index for a broad set of energy sources fell by 3.5% in March as the gasoline index (-4.6%), the natural gas index (-7.1%) and the electricity index (-0.7%) all decreased. Excluding the volatile food and energy components, the “core” CPI rose by 0.4% in March, following an increase of 0.5% in February. Meanwhile, the food index was unchanged in March with the food at home index falling 0.3%.
