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Housing inflation isn't slowing yet. And it may prove tough to tame

The slowing housing market has yet to significantly reduce costs for most Americans. But economists believe more rate hikes may be on the way.

Falling gas prices provided substantial relief to family budgets in August, but inflation remained persistent in core categories, including the ever-rising cost of housing.

Consumer prices recorded nearly no change for the second consecutive month in August, but remained 8.3 percent higher than the same time last year, according to the latest report from the U.S. Bureau of Labor Statistics.

Stripping out the volatile categories of food and energy — and especially the impact of gasoline — core prices last month increased 0.6 percent since July, capping off a rise of 6.3 percent over the last year.

The stubborn price growth in core categories, including housing, may strengthen the case for “a more hawkish” Federal Reserve, First American Deputy Chief Economist Odeta Kushi said in a statement. Financial markets opened lower Tuesday morning after the report’s release.

“The surprise to the upside all but guarantees continued aggressive action from the Fed, likely putting more upward pressure on mortgage rates,” Kushi said. “Mortgage rates have more than doubled compared with one year ago, resulting in slower sales and house price deceleration. Even higher rates will likely accelerate the great housing market moderation.”

Lawrence Yun, the chief economist at the National Association of Realtors, concurred this level of inflation places pressure on the nation’s central bank.

“Consumer prices are still rising too aggressively and will force the Federal Reserve to take an even more hawkish stance to fight them,” Yun said in a statement.

Housing remained one of the biggest contributors to inflation. The estimated cost of owning a primary residence rose 0.7 percent in July alone, according to government figures. It was up 6.3 percent year over year.

Meanwhile, the cost of renting a primary residence rose just as quickly in August and was up 6.7 percent year over year. Rents haven’t risen this fast in a single year since 1986.

And in the short run, there’s reason to think rent prices may not be done growing.

“Rent prices look to accelerate in the near term as rental demand remains exceptionally high from ongoing job additions and higher mortgage rates forcing people out of the home-buying market,” Yun said in the statement.

The saving grace for consumers in August was the continued reduction in gas prices. The cost of filling up at the pump dropped by nearly 11 percent in that month alone.

Some other transportation costs were in decline as well. Airline fares were 5 percent lower in August than the month before.

But these late-summer reprieves were offset by the rise in the price of shelter and other necessities.

Food prices, energy bills, furniture costs, and medical expenses all rose by at least as much as the cost of shelter did from July to August.

By Daniel Houston

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