Inflation is continuing to slow, showcased by the February headline number — 6%. That’s down from 6.4% in January, and it’s the eighth month in a row that the rate of inflation, as measured by the consumer price index, has declined. 

However, February’s reading is still nowhere near the Federal Reserve’s target rate of 2%. One key reason inflation is still so stubbornly high is the cost of housing. 

Shelter costs are driving more than 70% of inflation right now, according to the Bureau of Labor Statistics. 

But there are lots of other data showing that rising interest rates are having an impact on the housing market, including rents. So what gives? 

Well, it helps to think back to the first year or two of the pandemic, when the housing market — and later, the rental market — really took off.

“It took some time for that strength to show up in inflation,” said Ali Wolf, chief economist at the housing data and consultancy firm Zonda.

“We didn’t see that much inflation from shelter in early … 2021,” she said. Even though price gains were already in progress.

“The same thing is now happening in reverse, where we know that housing was one of the first sectors to slow in the wider economy,” Wolf explained. “And yet today’s inflation release is still showing that overall shelter is growing, and growing at a pretty rapid pace.”

It generally takes six to 12 months or even longer for changes in rents and housing costs to show up in inflation data. Wolf said the rental market didn’t really start to slow until late last year — less than six months ago. 

“That means when we’re looking at … the shelter component of the consumer price index, we’re really looking at a shadow of the housing market,” said Igor Popov, chief economist at Apartment List. “Where it was recently, not where it is now or where it’s headed.”

He said that if you look at what’s happening in real time, it becomes pretty clear. “Rising interest rates have already done their job on the housing market,” he said.

The Fed, obviously, knows all this, said Lisa Sturtevant, chief economist at Bright MLS.

“So there’s been a lot more attention being paid not only to core inflation — which removes the volatile sectors of food and energy — but now this idea of ‘supercore’ inflation, which also takes out housing from the overall CPI,” she explained.

Not because it’s volatile, but because it’s lagging.