Rents continue to rise rapidly, and these developed economies have a long road ahead in their fight against inflation.

The battle against inflation in some developed economies remains tense.

The battle against inflation in some developed economies remains tense.
Many developed economies around the world, including the United States, the United Kingdom, and Australia, are facing continued soaring rents. And housing costs account for a large proportion in the consumer price index (CPI) basket of these economies, thus increasing Inflation stickiness in these economies.
The greater risk is that higher rents may cause people in these economies to demand higher wages to cope with the rising cost of living. This may make wages another factor driving up inflation.
In any case, along with the trend of soaring rents, in these advanced economies, the de-inflationary momentum that took place for most of last year has almost stalled.
Financial markets have also weakened their bets on interest rate cuts by some of the central banks of these economies, such as the Federal Reserve, and have even begun to bet on the possibility of further interest rate hikes by some of these central banks, such as the Reserve Bank of Australia.
Shane Oliver, chief economist at AMP Limited in Sydney, said: Rent, like inflation, is a lagging indicator of the economic cycle. Therefore, it will be one of the most difficult factors to fall back.
However, the impact of this factor on global economies is not the same. The rental problem is not a big problem in Europe, but it will be more significant in those economies with a rapid influx of new immigrants and a shortage of housing stock.
The Reserve Bank of Australia may raise interest rates as a result. Australia fully meets the above two criteria.
Michele Bullock, chairman of the Reserve Bank of Australia, said on Tuesday (May 7) that the strong flow of immigration in recent years has increased pressure on the real estate market and rents have continued to soar.
Data show that in the first quarter of this year, Australia\’s rental inflation rate increased by 7.7% year-on-year, setting the highest level in 30 years since the Reserve Bank of Australia began tracking the inflation rate.
If housing is excluded, Australia\’s annual CPI is 3.2%, which is 0.4 percentage points lower than the overall CPI covering housing. It is close to the bank\’s inflation target range of 2 to 3%.
In the quarterly economic forecast update released by the Reserve Bank of Australia on the same day, the bank expects Australia\’s rental inflation to remain high until at least mid-2026.
Deutsche Bank economist Phil Odonaghoe said that the downward trend in Australia\’s core inflation rate that began in early 2023 has come to an abrupt end. This is partly due to rising rents.
Data from real estate consultancy CoreLogic this week showed that Australia\’s median rent hit a record high of A$627 ($414) per week in April, up 8.5% year-on-year.
Strong momentum in any component of the CPI, if sustained for a long enough time, is likely to intensify expectations for rising inflation, thus affecting CPI data more broadly.
O\’Donahoe said the risk of this happening to Australia was far from trivial.
This situation may affect the monetary policy decision of the Reserve Bank of Australia.
At the latest May interest rate meeting, the bank stayed on hold.
However, the market\’s previous hope of multiple interest rate cuts from the Reserve Bank of Australia during the year may come to nothing because the Reserve Bank of Australia has released a hawkish signal this time, suggesting that it may continue to raise interest rates.
The Reserve Bank of Australia said that recent data indicate that the process of returning inflation to target is unlikely to be smooth. It is expected that inflation will not return to the target range until the second half of 2025.
As the Reserve Bank of Australia continues to maintain high interest rates, the bank\’s latest Monetary Policy Statement (SMP) shows that Australian households are bearing the burden, especially low- and middle-income households that are heavily in debt.
The bank has significantly lowered its already weak household consumption forecast. It expects Australian household consumption to grow by only 0.1% in the past year to June. This is significantly lower than the 0.8% forecast in February.
The bank said a combination of debt-ridden households, higher-than-expected savings rates among wealthy households, falling discretionary spending, and an expected slowdown in international student arrivals due to more stringent visa exams are hitting Australia\’s total consumption.
The Bank of England may have to cut interest rates. Soaring rents are also a major pain point for British households. It is also a key voter issue that will have to be faced in the British general election later this year.
Since 2022, UK rents have increased by 20% cumulatively. They are currently continuing to rise at the fastest rate since relevant records began.
High mortgage rates have forced some potential homebuyers back into the rental market, exacerbating a housing shortage caused by decades of underinvestment in the UK.
According to an analysis by the independent think tank Resolution Foundation, UK rents will grow by a further 13% over the next three years, outpacing wage growth.
Tera Allas, UK head of research and economics at consulting firm McKinsey, said: Given the importance of rents in the UK CPI basket, if rents continue to rise at a rate higher than the Bank of England target, it will obviously increase price pressure.
However, BoE officials may be more concerned about the prospects of projects and industries that are clearly under pressure on wages or profits, such as the hotel industry.
Based on this, the Bank of England may now pay more attention to the two indicators of wage growth and service industry inflation, and convey a message to the market that if these two indicators cool down, and the commodity inflation has been lower than 1%, it can offset the rising trend. Rental costs. Bring UK inflation back to the 2% target.
The market currently generally expects that the Bank of England will keep interest rates at a 16-year high of 5.25% today (May 9, local time). But at the same time, it is closely watched whether the Governor of the Bank of England will provide clearer information to the market. That is, whether it plans to Policy easing will begin at the policy meeting in June or August.
However, Bailey is bound to encounter disagreements within the Monetary Policy Committee over when to take action.
At the same time, he will face increasing political pressure on the eve of the British general election.
British Finance Minister Hunt has mentioned the possibility of interest rate cuts many times before, saying that this would provide voters with a feel-good factor.
It may disturb the prospects of the Federal Reserve\’s interest rate cuts. For the Federal Reserve, which is trying to determine the time window for interest rate cuts, rental costs are also an inflationary factor that cannot be ignored.
Rent accounts for about one-third of U.S. CPI and is one of the largest drivers of the index.
U.S. core CPI, which excludes food and energy costs, beat market expectations for the third straight month in March. It was hurt by rising rents.
Federal Reserve Chairman Powell said after the FOMC (Federal Open Market Committee) meeting last week that he expects rental cost pressures to ease later and eventually be reflected in the broader price index, allowing the Federal Reserve to start cutting interest rates at some point in the future.
The Fed is currently keeping its benchmark interest rate at its highest level in more than 20 years, but has signaled it wants to start cutting interest rates when it is confident inflation is under control.
Traders are currently betting that the Fed will cut interest rates at least once this year (by 25 basis points).
In fact, though, the Fed may have to wait.
The latest annual survey of consumer housing expectations released by the New York Fed on Monday showed that the proportion of U.S. renters who expect they may be able to afford a home in the future fell to a record low of 13.4%.
In terms of rent, respondents believe that the cost of renting a house will increase by 9.7% in one year, which is the second highest figure in the history of the survey.
U.S. Treasury Secretary Janet Yellen said frankly: Housing is a real problem in the United States right now because there is a serious shortage of affordable housing, partly due to the impact of high interest rates.
But she also said that having said that, I think housing and rental costs, which have been driving up inflation in the United States, are likely to fall.
The market also has its own judgment.
Stephen Stanley, chief U.S. economist at Santander US Capital Markets LLC, said that although U.S. inflation may begin to slow from now on, it is unlikely to be significant due to rental costs. Cool down.

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