Real Impact: What the August CPI Report Means for Rental Housing

Real Impact by Chandan Economics explores how cornerstone data releases influence interest rate forecasts and reshape the rental housing sector's outlook.

Last Updated: September 11th, 2025

What Happened:

The consumer price index rose 0.4% month-over-month and 2.9% year-over-year in August, roughly in line with market estimates.

While both the monthly and annual CPI rates were higher than in July, the marginal acceleration in inflation pressures is unlikely to dissuade the FOMC from slashing rates at its upcoming meeting.

Core-CPI prices, which strip out food and energy and more closely resemble what the Fed considers for monetary policy decisions, rose by 0.3% month-over-month and 3.1% year-over-year, unchanged from July.

Impact on Interest Rates:

Federal Funds futures were little changed by the August CPI report. However, since inflation pressures appear to be in line with expectations, while labor market conditions are worsening faster than many expected, futures markets, on the margin, are more dovish than they were one day ago.

According to the Chicago Mercantile Exchange’s (CME) Fed Watch Tool, there was a 91.1% probability of a 25-basis point cut and an 8.9% chance of a 50-basis point cut one day before the CPI release. In the minutes immediately following the release, the probability of a single cut edged down to 88.1% while the probability of a 50-basis point cut rose slightly to 11.9%.

Very weak August jobs data, alongside BLS revisions that show that the US added 911,000 fewer jobs between March 2024 and March 2025, have markets firmly convinced that a rate cut is imminent. A modest uptick in consumer prices, which follows a slight decline in producer prices published the day prior, has failed to alter this outlook.

Forecasts for the year-end Federal Funds rate experienced an even more dovish shift. Before the CPI release, there was a 98.3% chance of two or more rate cuts by the end of the year, but just a 74.5% chance of three or more cuts.

After the release, there is now a 99.9% chance of at least two cuts by the end of the year, and a 92.1% chance of at least three cuts.

What it Means for Rental Housing:

The increasingly dovish outlook for rate cuts is a welcome sign for multifamily developers and builders, who are strained by high borrowing costs. While an uptick in CPI won’t be a welcome sign for consumers, an accelerated timeline for the lowering of interest rates could bring relief to consumers more quickly.

Still, an uptick in price pressures will likely keep the internal FOMC debate on the appropriate path of policy unsettled. The August drop in producer prices suggests both that profit margins are compressing and that tariff-related impacts have not yet fully filtered down to consumer price tags.

Even if a tariff-induced uptick in inflation is temporary—as many economists believe it will be—the timing could complicate the Fed's ability to loosen borrowing rates as the labor market faces a growing deterioration.