Today's inflation report didn't offer much good news for Federal Reserve officials hoping to stimulate a flagging economy.
Fed officials, who are mulling various measures to fend off recession ahead of a Sept. 20-21 meeting of policy makers, had been gaining confidence that further stimulus wouldn’t entail too much risk of pushing up inflation. One reason: While prices for internationally traded commodities have seen some sharp rises, prices for locally provided services have been more or less stable.
The latest data, though, show the price of one major service -- shelter -- accelerating. The Labor Department "rent of shelter" index rose a seasonally adjusted 0.3 percent in August, accounting for about a quarter of the 0.4 percent rise in the overall consumer price index. The rising housing costs contributed even more to a rise in the "core" price index, which excludes food and energy and is supposed to provide a better read of underlying inflation. In the three months through August, that index rose at an annualized rate of 2.9 percent, well above the Fed's target of about 1.7 percent to 2 percent.
There's not much the Fed can do about rents in the near term. American households' shift away from home ownership is probably having much more impact than interest rates. But rising rents can certainly complicate the Fed's decision-making.
(Mark Whitehouse is a member of the Bloomberg View editorial board)