Rising Rents Threaten to Prop Up Inflation

Kaitlin Cindrich is facing a $200 monthly increase in rent this August if she and her husband can renew their apartment lease in Provo, Utah. That 25 percent jump is not something she expected, and the 21-year-old fears she may have to skip doctor appointments for her autoimmune disease to keep up with the payments.

Still, she acknowledges there isn’t much choice but to pay more. “We are hoping to stay because everything is so expensive right now that I would be paying the same whether I’m here or somewhere else,” Ms. Cindrich said.

The rental market, which slumped during the pandemic, has snapped back more quickly than many economists predicted, and renters across the country are facing sticker shock. When the pandemic hit, many people who lost their jobs discontinued their apartment leases to live with parents or roommates temporarily. Others fled big cities out of health concerns. Apartments went empty, and landlords began offering incentives, such as a free month, to entice tenants.

Now, as people move out on their own again or return to cities and office jobs, and as existing renters find they can’t afford to buy a home in a booming housing market, demand for apartments and single-family rentals is rebounding — and even looking hot in some places. Rents last month rose 7 percent nationally from a year earlier, Zillow data shows. While that was measured against a weak June 2020, the gain was also a robust 1.8 percent from May.

“After a year, jobs are coming back strongly, and this is recreating the housing demand for rental units and occupancy is rising,” said Lawrence Yun, chief economist at the National Association of Realtors.

If rents continue to take off, it could be bad news both for those seeking housing and for the nation’s inflation outlook. Rental costs play an outsize role in the Consumer Price Index, so a meaningful rise in them could help keep that closely watched government price gauge, which has picked up sharply, higher for longer. Rents are only about half as important to the Federal Reserve’s preferred Personal Consumption Expenditures inflation index, but a long bout of high C.P.I. inflation may influence consumers’ expectations for future price gains, which could in turn quicken them.

Consumer prices jumped a rapid 5.4 percent in the year through June, but much of the increase was tied back to the economy’s reopening from the pandemic. Policymakers at the Fed and White House have maintained that today’s strong price pressures should fade as the economy gets back to normal, as one-off problems pushing up used car prices are resolved and as a spike in demand that’s elevating furniture and washing machine costs begins to abate.

Yet that’s where housing costs could kick in. Measures of rent and what’s called “owners’ equivalent rent” — which uses rental data to try to put a price on how much owners would pay for their housing if they hadn’t bought a home — make up nearly one-third of…

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