Shelter Costs Drive Core Inflation Uptick in August

Shelter Costs Fuel Core Inflation Surge

In August, housing prices, specifically in the shelter category, skyrocketed at the fastest monthly pace of the year. The index for shelter, which includes both rents and owners' equivalent rent, saw a month-over-month increase of 0.5%, following a 0.4% rise in July.

Key Influences on Inflation

• Owners' equivalent rent rose 0.5% from July to August.
• Rent prices recorded a 0.4% increase during the same period.
• Shelter prices now account for roughly 40% of the underlying core inflation.

Year over year, shelter costs surged 5.2% in August, which contributed to over 70% of the total 12-month increase in core CPI, according to data released by the bureau.

Economic Outlook

Although the acceleration in August raised concerns, Michael Pearce, deputy chief U.S. economist at Oxford Economics, expressed skepticism about the sustainability of these rising costs. He stated, "The re-acceleration in rents and owners' equivalent rent appears to be noise rather than a new upward trend." Furthermore, despite the uptick in August, core inflation has averaged close to 2% annualized over the past three months. Thus, Fed officials will focus on labor market conditions in their upcoming meetings.