A Faster Convergence of Shelter Prices and Market Rent: Implications for Inflation

8 Pages Posted: 26 Jun 2024

Date Written: June, 2024

Abstract

The Federal Reserve currently faces a “last-mile” problem in bringing inflation back to its 2 percent target. Following the series of federal funds rate hikes that began in March 2022 and ended in July 2023, core (excluding food and energy) Personal Consumption Expenditure (PCE) inflation dropped from a year-over-year peak of 5.6 percent in February 2022 to 2.9 percent in December 2023. At the end of 2023, hopes were high that falling inflation would allow the Fed to cut interest rates several times in 2024. However, the disinflation process slowed noticeably in early 2024, prompting questions about how soon the Fed can attain its 2 percent inflation target. The price of shelter accounts for a substantial share of the indexes used to measure overall inflation—the PCE and the Consumer Price Index (CPI)—and it has remained significantly above its pre-pandemic trend in recent months. Therefore, it is important to understand how shelter prices will likely evolve during the current disinflation process.

Keywords: CPI, PCE, housing, disinflation, COVID-19

JEL Classification: E37, E31, E17

Suggested Citation

Cotton, Christopher D., A Faster Convergence of Shelter Prices and Market Rent: Implications for Inflation (June, 2024). Federal Reserve Bank of Boston Research Paper Series Current Policy Perspectives Paper No. 2024-4, Available at SSRN: https://ssrn.com/abstract=4875506

Christopher D. Cotton (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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