Inflation Falls Below 3% Amid Persistent Housing Costs

Inflation dropped below a 3% annualized growth rate for the first time since March 2021 even though housing costs continue to climb. Nonetheless, the headline reading is another dovish signal for future monetary policy, following signs of weakness in the most recent job report.
Despite a slowdown in the year-over-year increase, shelter costs continue to exert significant upward pressure on inflation, contributing nearly 90% of the monthly increase in overall inflation and more than 70% of the total 12-month increase in core inflation. As consistent disinflation and a cooling labor market bring the economy into better balance, the Federal Reserve is likely to further solidify behind the case for rate cuts, which could help ease some pressure on the housing market.
The Fed’s ability to address rising housing costs is limited because increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. However, the Fed’s tools for promoting housing supply are constrained. In fact, further tightening of monetary policy would hurt housing supply because it would increase the cost of AD&C financing.
Nonetheless, the NAHB forecast expects to see shelter costs decline further in the coming months. NAHB Senior Economist Fan-Yu Kuo delves into the data in this Eye on Housing post.
Latest from NAHBNow
Sep 03, 2025
Project Funding Crisis: How Top Builders Secure Money When Others Can'tRelying solely on a traditional lender is risky in today’s environment. Smart builders line up more than one source of funding. That way, projects stay on track, crews keep working, and reputations stay solid.
Sep 03, 2025
How Building Codes Can – and Can’t – Help in FloodsCould enhanced building codes help save lives and property in flood-prone areas? Perhaps. But it is important to note there are already enhanced building codes required in flood zones.
Latest Economic News
Sep 03, 2025
Open Construction Jobs Rise in JulyThe count of open, unfilled positions in the construction industry increased in July, per the June Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) as the national labor market cooled.
Sep 03, 2025
House Price Appreciation by State and Metro Area: Second Quarter 2025House price growth continued to slow in the second quarter of 2025, as the housing market faces mounting pressure from high mortgage rates, elevated inventory, and persistent economic uncertainty.
Sep 02, 2025
June Private Residential Construction Spending Edges HigherPrivate residential construction spending inched up 0.1% in June, registering the first monthly gain after six consecutive declines.