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The rampant inflation that has contributed to mortgage rates of 7% has been largely tamed, but the affordable housing crisis continues to weigh on household budgets.
The U.S. Bureau of Labor Statistics (BLS) on Wednesday released its Consumer Price Index (CPI) for May, which shows headline inflation growth of 2.4% year over year. Prices were 0.1% higher compared to April. Core inflation — which doesn’t include volatile food and energy prices — rose 2.8% annually and 0.1% monthly.
The headline numbers are positive for Americans, but overall inflation is still being driven by shelter costs, which rose 3.9% annually and 0.3% monthly. Annual rent growth is 3.8% and the homeowner’s equivalent of rent jumped 4.2%.
The housing market remains paralyzed by high mortgage rates, which rose back to 7% in the aftermath of President Donald Trump’s announcement of a new global tariff regime on April 2. But the Federal Reserve has said it wants to see inflation at 2% before cutting interest rates again.
Cooling inflation is good news on that front, but the Fed is also waiting on the labor market to soften. That hasn’t happened in a meaningful way. The BLS’s jobs report for May showed a slight drop in the number of new jobs added, but unemployment stayed flat at 4.2%.
The size and scope of Trump’s tariffs were widely expected to supercharge inflation, but that hasn’t happened yet. Trump paused most of the April 2 tariffs until July, and the trade war with China also appears to be deescalating.
The president announced on social media Wednesday that the two nations have reached a “framework agreement” that is ready for final approval.
While the inflation data suggests that tariffs haven’t had the impact many feared, economists have questioned whether the hiring freeze placed on federal agencies by Trump at the start his second term is leading to less accurate inflation data.
The BLS is currently short-staffed, and UBS data cited by the Wall Street Journal shows that the percentage of the CPI that’s filled in by an “educated guess” has almost tripled from the historic norm. There is currently no evidence that officials are directly tampering with the numbers.
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