In June, shelter prices rose 0.2%, their lowest monthly jump in nearly three years, according to the consumer price index. But a jump is a jump, and overall, you could say the price of shelter has been hopping. Up 5.2% over 12 months, it’s a big factor keeping inflation from reaching the Federal Reserve’s target of 2% annually.

In a pie chart of your household expenses, shelter costs — that’s rent or what it costs to live in your home — likely take up a big ol’ chunk. It’s reflected in federal data.

Shelter accounts for about a third of the CPI, said Steve Reed, an economist with the Bureau of Labor Statistics, which puts out the consumer price index.

One reason shelter inflation has stayed high in the past couple of years is that many young adults want their own space, said Jessica Lautz, deputy chief economist with the National Association of Realtors.

“There are a lot of people who don’t want to double up anymore,” she said.

In many cases, double up with their parents, which Lautz said happened a lot during the pandemic.

Now, these grown-up kids are competing in a housing market where inventory is low, partly because lots of older people are staying put. “It’s putting pressure on both the rental market and homes for purchase,” she said.

So, if shelter inflation continues apace, will the Fed be able to reach its goal of 2% for overall inflation? “Sure, it’s mathematically possible,” said Reed with the BLS.

Remember, shelter is about a third of the consumer price index. The other two-thirds are clothing, medical care, food — basically, everything else. “And so if the two-thirds everything else is low enough, that’s going to get us below 2%,” he said.

So, mathematically possible. But not likely, said Ben Ayers, a senior economist at Nationwide. 

“It’s going to be very difficult,” he said. If shelter inflation cools to the 3% range, that could help get overall inflation closer to 2%, he added.

But, Ayers said, this housing piece going down is not necessarily a requirement to get the Fed to lower interest rates.

“If they see enough cooling, on medical care costs, transportation costs, I think that’ll be enough for the Fed,” he said.

However, Ayers warned, just because the Fed starts to lower rates doesn’t mean they will plummet. “They’re going to come down, but not nearly as quickly as they normally have,” he said.

Typically, he said, the Fed raises rates like a staircase and lowers them like an elevator.

He thinks this time, we’ll see the reverse: Rates went up pretty dang fast and will go down nice and slow.