Housing costs shifted into overdrive last month and risk becoming an enduring source of U.S. inflation.
Rent of shelter and owners' equivalent rent each accelerated 0.8% in September from the prior month, the most since 1990, according to Labor Department data released Thursday. Both measures posted record 6.7% advances on an annual basis.
That contributed to the biggest year-over-year increase in overall shelter costs, which also includes hotel stays and tenants' and household insurance, since 1982.
Housing makes up about a third of the overall basket of consumer prices, which rose last month by more than forecast. It comprises an even larger share of the so-called core CPI, which also exceeded estimates. The report cited shelter, along with food and medical care, among the largest of "many contributors" to the broad advance in September.
Even excluding rent of shelter, the cost of services still rose at a record annual pace, underscoring the breadth and depth of overall price pressures in the economy.
Changes in shelter costs take time to filter through to the Labor Department's data, as the current acceleration reflects in part the run-up in rents and housing prices seen over the past two years. So while some current measures of rents are now showing slower growth, it will take time before that shows up in the CPI.
Bloomberg Economics doesn't expect year-over-year rates for the major shelter components to peak until well into the second half of next year.
That's little comfort to the Federal Reserve, which is on an all-out mission
Higher borrowing costs for home purchases are already slowing demand and will probably lead to a further retreat in asking prices.
The Fed has observed that its policies have had an impact on interest-sensitive sectors like housing and business investment, but they've yet to work through to most other economic activity, according to minutes of officials' September meeting released Wednesday.
"Even with an anticipated fall in home prices in some markets — principally in California — homes will continue to be unaffordable, while rents are squeezing non-owners," Lawrence Yun, chief economist at the National Association of Realtors, said in a statement following the CPI report.
