Bloomberg this morning reported that median rents in the U.S. dropped 0.7% year-over-year.  That’s surprising given the that cost of housing has been rising so furiously for the last four years.  It’s a welcome reprieve for Americans looking for a place to live, and it’s good news for those of us who carefully watch inflation and its impact on interest rates. The imputed $1,595 rents are the lowest they’ve been in 2.5 years.

The Consumer Price Index met expectations today with a 0.3% month-over-month and a 2.7% year-over-year increase.  These represent a 0.1% upward tick from last month’s measures.  Where “shelter” constitutes 36% of the CPI computation, a reduction in rent charges and declining interest rates will help CPI (and inflation overall) drop back down next month. With housing costs declining, elevated food costs, which account for 13.5% of CPI, and transportation (16%) are being blamed for the resilient consumer prices holding.

Mortgage prices are softening, putting upward pressure on interest rates.  Sans big news over the next week, I expect that rates will continue to moderate as investors hedge heading into the Fed announcement next Wednesday.