Abnormally rapid rent increases, likely reflecting an increase in the demand for rental units by would-be owners who have been priced out of the housing market, have also elevated core inflation over the past year. As the housing market adjusts over time, however, this source of inflationary pressure is also apt to dissipate.

In response to greater demand, the supply of rental housing should increase over time, in part by drawing from the overhang of owner-occupied units; hence, I do not expect rents to be a major influence on core inflation a year or two from now, the horizon that is the focus of monetary policymaking.

For example, rents are finally moving up more vigorously after a long period of stagnation. This may reflect, in part, expectations that house-price appreciation will continue to slow, as landlords raise rents to try to maintain the total rate of return on rental properties and as those in the market for housing grow more inclined to rent than to buy.