Real Impact: What The March CPI Report Means for Rental Housing

What Happened: 

Consumer prices declined by 0.1% in March and rose 2.4% year-over-year, according to the April 10th release by the Bureau of Labor Statistics. Annual inflation was at its lowest since February 2021, and monthly item increases were across-the-board lower than consensus estimates.

Declines in energy and related items drove the overall monthly fall in prices. The CPI energy index dropped 2.4% during the month and is down 3.3% year-over-year. Food prices rose 0.4% month-over-month.

Core-CPI, which includes all items minus food and energy and is more relevant for monetary policy considerations, rose 0.1% month-over-month. The shelter component of CPI increased by just 0.2% from February, its lowest monthly increase since August 2021. March’s annual shelter cost increase also sits at a near four-year low.

Impact on Interest Rates: 

Forecasts for May’s FOMC policy meeting consolidated further around the expectation of no rate cuts, from a 79.6% chance as of April 9th to an 86.2% probability shortly after the CPI data was released.

 The average futures market outlook for the year-end 2025 federal funds remained at a total of three rate cuts by December — but the better-than-expected inflation data caused the probability to increase. As of this morning, there was a 77.1% chance of at least three rate cuts by the end of 2025 compared to a 66.8% probability one day ago. The CPI decline has caused a larger share of futures markets to foresee four or five rate cuts in 2025 as downside risks to the economy increase.

What it Means for Rental Housing:

The shelter component of CPI has a notable lag, and we are now likely beginning to see the cumulative effects of rent growth cooling that has gradually taken hold over the past two years. Industry projections show the CPI shelter component continuing to cool in the coming months— albeit gradually.

While marginal, today’s dovish shift in interest rate futures suggests that markets see risks to growth increasing relative to inflation risks. However, with tariff uncertainty upending consumer sentiment and inflation expectations, both markets and policymakers remain in a wait-and-see position.

For real estate investors, a return to a stable interest rate environment cannot come soon enough — especially after the hour-to-hour volatility of the past week. At the very least, this morning’s CPI report was not another log on the fire.