Increasing US housing costs are stopping inflation from falling faster

<img class="type:primaryImage" src=",fl_progressive,q_80,w_636/de5b59845c533f23f8694e579a63896e.jpg" /><p>US inflation moved up by 0.2% from June to July, a moderate pace that economists had expected. On a 12-month basis, the cons

Photo by Jonathan Ernst (Reuters).

US inflation increased by 0.2% between June and July, which was a modest pace compared to what economists expected. According to the US Labor Department, the consumer prices index increased by 3.2% over a period of 12 months, compared with 3% in the previous month.

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The inflation rate in July would have been lower had the US provided enough housing for its citizens. Labor Department notes that 90% of the rise in the index for July can be attributed directly to housing.

The US does not have enough housing units to accommodate everyone in the country. It also doesn't offer Americans enough housing choices to keep the prices down. Rent or home prices are unlikely to be affordable until restrictive local zoning regulations are relaxed.

Used and new cars also saw a drop in inflation. After removing food and energy from the equation, inflation's measure for the year continued to fall, indicating that there may be more decreases to come in other categories which tend to drive overall inflation.

Seema Shah, Chief Global Strategist at Principal Asset Management in an email, said that the surge in housing inflation will not be permanent. Private sector data, such as Zillow’s monthly rental report, shows signs of a slowdown in rent growth.

The US is on track for a slowdown in cost increases without a recession, or as the Federal Reserve calls it a "soft land."

Shah stated that the Fed should keep its policy rates unchanged for September. Both headline and core inflation is waning, and the internals in the CPI print indicate that further deceleration should build over coming months.