Housing costs: a final hurdle in the last mile of disinflation?

Key takeaways

• Inflation receded from recent peaks, but housing cost growth remains elevated. This strength reflects pandemic-induced changes in housing supply and demand which further aggravated existing pressures from long-standing housing shortages and demographic trends.
• Strong growth of the housing component of inflation can be a concern for monetary policy because it tends to be more persistent than components related to other  services and goods, reflecting lags in measurement and infrequent changes in rents.
• In the short term, rents and housing costs may rise after a monetary policy tightening if landlords pass higher financing costs to tenants, property developers reduce new supply or more households opt to rent rather than buy.