Shelter Inflation Continued to Cool – Eye On Housing

Inflation accelerated to a seven month high in August as tariff-related costs continued to pass through to consumers, according to the Bureau of Labor Statistics’ (BLS) latest report. Core goods prices, which exclude volatile food and energy, rose by 1.5% in August, the fastest annual pace since May 2023. Meanwhile, housing inflation continued to show signs of cooling, matching the lowest level since October 2021.

Though inflation is likely to remain elevated this year, the Fed is expected to restart easing due to recent weaker job reports. Given the housing market’s sensitivity to interest rates, this could help ease the affordability crisis and support housing supply even as builders continue to face supply chain challenges.

During the past twelve months, on a non-seasonally adjusted basis, the Consumer Price Index rose by 2.9% in August, the highest reading since January 2025. Excluding the volatile food and energy components, the “core” CPI increased by 3.1% over the past twelve months. A large portion of the “core” CPI is the housing shelter index, which increased 3.6% over the year, the lowest reading since October 2021.  Meanwhile, the component index of food rose by 3.2%, and the energy component index increased by 0.2%.

On a monthly basis, the CPI rose by 0.4% in August (seasonally adjusted), after a 0.2% increase in July. The “core” CPI increased by 0.3% in August, unchanged from July.

The price index for a broad set of energy sources rose by 0.7% in August, with declines in natural gas (-1.6%) and fuel oil (-0.3%) offset by increases in gasoline (+1.9%) and electricity (+0.2%). Meanwhile, the food index rose by 0.5% in August, after being unchanged in July. The index for food away from home increased by 0.3%, while the index for food at home fell by 0.6%.

The index for shelter (+0.4%) continued to be the largest contributor to the monthly increase in all items index. Other top contributors that rose in August include indexes for airline fares (+5.9%), used cars and trucks (+1.0%), apparel (+0.5%) as well as new vehicles (+0.3%). Meanwhile, the index for medical care (-0.2%), recreation (-0.1%) and communication (-0.1%) were among the few major indexes that decreased over the month. The index for shelter makes up more than 40% of the “core” CPI, rising by 0.4% in August, following a 0.2% increase last month. The index for owners’ equivalent rent (OER) rose by 0.4% and index for rent of primary residence (RPR) increased by 0.3% over the month. Despite the moderation, shelter costs remained the largest contributors to headline inflation. 

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than core inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than core inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In August, the Real Rent Index remained unchanged. Over the first eight months of 2025, the average monthly growth rate remained flat at 0.0%, slower than the average of 0.1% in 2024.