Housing costs are one of the biggest components of high inflation—and new signs show that the end is in sight.

The Wall St. Journal reported that economists are predicting that surging housing costs have “swung into reverse,” based on data related to private-sector indexes of rents on new leases.

“Last year we saw huge increases in these market rent measures in June, July and August, but they’re now coming in at or below their prepandemic pace,” Alan Detmeister, economist at UBS told the Journal. “That suggests we should now be past the peak for monthly CPI rent increases.”

Federal Reserve Chairman Jerome Powell said in his Nov. 30 speech that if housing inflation begins falling next year as predicted, this “underlies most forecasts of declining inflation.”

But some economists think that putting all the inflation eggs in the housing basket isn’t completely practical. 

“The idea that shelter in and of itself is the driver of inflation is a little overstated,” Steven Blitz, chief U.S. economist at TS Lombard told the Journal.

Shelter inflation is slow to change, the article said, because of how it is calculated by the Labor Department’s Bureau of Labor Statistics. 

Owners’ equivalent rent (OER), a measure of the consumer price index, isn’t based on home prices or mortgage payments because home purchases are an investment. 

Instead, OER is based on what an owner would have to pay to rent her own home, compiled from rents in high-homeownership areas, according to the article. But they’re looking at a pool of rents, not just new rents, so the data takes time to catch up. 

Still, Jake Oubina, senior economist at Piper Sandler, told the Journal that “the slowing in rents to date is enough to reduce core PCE (personal consumption expenditure) inflation to 2% by the second half of next year.”

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