Rents Set to Be Last Domino to Fall in Global Inflation Battle

Summary:

The persistent inflationary pressures in developed economies, particularly the surging rents, are posing significant challenges for central banks. In countries like the US, UK, Canada, and Australia, the rapid rise in housing costs is proving to be a major barrier to achieving targeted inflation levels. This issue is exacerbated by factors such as high immigration rates and shortages in housing supplies, notably in Australia, where strong immigration has intensified demands on the housing market, pushing rents to record highs. As central banks navigate this complex scenario, their usual tools, like adjusting interest rates, are being tested, making it difficult to curb inflation effectively.

In the UK, the rental market’s dynamics are influencing political landscapes, with rising rents becoming a critical issue for voters in the upcoming general election. The Bank of England, while wrestling with this problem, is also focusing on other inflationary pressures like wage and services inflation. Similarly, in the US, the Federal Reserve is closely monitoring rental costs as a significant factor in inflation, awaiting an opportunity to adjust rates. The overall situation suggests that while there may be some moderation in inflation, significant cooling off appears unlikely in the near term, presenting ongoing challenges for policymakers aiming to stabilize economic conditions.

Our take (from the Straight to Smart newsletter):

Resist the Rate Cut Hype

Article Excerpt:

Surging rents across many developed economies are proving to be a stubborn hurdle for central banks as they struggle to nail down inflation once and for all this tightening cycle.

In the US, UK, Canada and Australia, rapidly rising housing costs — which have a hefty weighting in consumer price index baskets — are preventing inflation from declining closer to central banks’ targeted levels. The danger is that workers will demand even fatter pay checks to deal with the cost-of-living squeeze, undermining the inflation fight even further.

Click to read original Bloomberg article (Subscription may be required):
Rents Set to Be Last Domino to Fall in Global Inflation Battle

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