[Economics] Rents May Be Last Tamed in Inflation Fight

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Top Stories The strong dollar is casting a shadow on the global trade recovery. Sweden cut its benchmark rate for the first time in eight years, while Brazil will likely slow the pace of monetary easing. Buy now, pay later platforms are making it tougher for economists to gauge the true state of health of America’s households. Read the BigTake. Rising Rents Surging rental costs across much of the developed world are causing pain for students, young workers and working families — and for the central bankers charged with delivering price stability for them.While the Federal Reserve and peers have managed to bring down goods inflation and have even taken the edge of services prices, rapidly rising housing costs — which have a hefty weighting in consumer price index baskets — are preventing inflation from declining closer to targeted levels. The upshot: The disinflation momentum seen through most of last year has all but stalled in some developed economies. That’s leading financial markets to either push back bets for interest-rate cuts, as seen in the US, or reinstate odds for further rate hikes, as is the case in Australia. Reserve Bank Governor Michele Bullock acknowledged the issue on Tuesday, saying strong immigration in recent years has “certainly added pressure on the housing market and that’s working its way out in rents.” The RBA, in its quarterly update of forecasts released the same day, said rent inflation is expected to “remain high” through at least mid-2026.Soaring rents are a major pain point for UK families as well and a key voter issue ahead of a general election expected later this year. Still, the Bank of England has other fish to fry. Governor Andrew Bailey and his colleagues have turned their focus on pay growth and services inflation, which remain too hot for comfort. If those metrics cool down, together with goods inflation already below 1%, they could counterbalance rising rent costs and bring inflation back to the 2% target. The UK central bank is widely expected by economists to keep rates at a 16-year high of 5.25% on Thursday, with investors watching for clues on whether policymakers see June or August as a window to begin cutting. As for the US, rent accounts for around one-third of the CPI inflation index, making it one of the biggest drivers of prices. Rents in most major US metropolitan areas have risen some 1.5 times faster than wages in the last four years, according to an analysis by Zillow Group Inc.And that could be about to get even worse. Household expectations about the change in the cost of rent have risen sharply from last year, with rental costs expected to increase by 1.5 percentage points to 9.7% for the next year, according to a survey by the New York Fed released Monday.The danger is that workers demand even fatter pay checks to deal with the cost-of-living squeeze, undermining the Fed’s inflation fight even further.

https://www.bloomberg.com/news/newsletters/2024-05-08/world-economy-latest-rents-may-be-last-tamed-in-inflation-fight