Add Rising Rents to the List of US Inflation Drivers

Rising US rents are likely to keep inflation elevated and could force the Federal Reserve to maintain or increase monetary tightening even as energy pressures ease elsewhere.

• Zillow’s Observed Rent Index shows US asking-rent inflation increasing from 1.8% year-on-year in March 2026 to 2.5% in August, with sharper increases among the 100 largest cities.
• Since February 2020, US home prices have risen 53% and 30-year conforming mortgage rates have increased by 350 basis points, pushing the monthly payment for a median-priced home up 124%.
• The median age of a first-time US homebuyer reached 40 in 2025, compared with 30 in 2008, leaving landlords with greater pricing power as homeownership becomes less affordable.
• Temple does not expect rents to revisit their 15% year-on-year peak from early 2022, but considers a return to the pre-pandemic average of about 4% likely.
• Shelter represents about 35% of headline CPI, 44% of core CPI and 15%–18% of the PCE index, while private rent measures lead official inflation data by roughly one year, pointing to possible inflation pressure in early to mid-2027.

Takeaway: Investors should allow for further US rate pressure, with futures already pricing three additional hikes through July 2027 to a 4.5%–4.75% target range, although the need for all three hikes remains uncertain and Europe and Japan may ease once energy markets normalize.