Rising rents in many developed economies are proving to be a persistent obstacle for central banks as they struggle to keep inflation under control once and for all in this tightening cycle.
In the US, Britain, Canada and Australia, rapidly rising housing costs – which have a significant weight in consumer price indexes – are preventing inflation from falling closer to central banks’ target levels. The danger is that workers will demand even higher paychecks to cope with cost-of-living pressures, further undermining the inflation fight.
The result: the disinflation momentum seen over the past year has virtually come to a standstill in some advanced economies. That will cause financial markets to either push back on interest rate cut bets, as in the US, or restore chances for further rate hikes, as is the case in Australia.
