After a tenth consecutive month of deceleration, inflation in April fell below 5% for the first time in two years. According to an analysis by the NAHB, the shelter index—while remaining the largest contributor to overall inflation—experienced its smallest monthly gain since January 2022.
The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline later in 2023.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.4% in April on a seasonally adjusted basis, following an increase of 0.1% in March. In April, the indexes for shelter (+0.4%), used cars and trucks (4.4%) and gasoline (3.0%) were the largest contributors to the increase in the headline CPI. Meanwhile, the indexes for airline fares (-2.6%) and new vehicles (-0.2%) declined in April.
During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 4.9% in April, following a 5.0% increase in March. This was the slowest annual gain since April 2021. The “core” CPI increased by 5.5% over the past twelve months, following a 5.6% increase in March. The food index rose by 7.7% while the energy index fell by 5.1% over the past twelve months.
