Housing’s inflation contribution nears pre-pandemic levels, and almost nobody noticed

One of the most stubborn drivers of post-pandemic inflation has been quietly retreating. Nick Timiraos, the Wall Street Journal’s chief economics correspondent, flagged that housing’s contribution to inflation has now fallen below pre-pandemic levels, with core PCE running at or below 2%.

The numbers behind the quiet shift

By March 2025, housing’s contribution to core PCE stood just 0.3 percentage points above the average from the 2011-to-2019 pre-pandemic period. That was down from a 0.5 percentage point overshoot a year earlier. As recently as early 2024, shelter inflation was clocking in at over 5% year-over-year.

The driving force behind this disinflation has been a gradual pass-through from lower new-lease rents. When rents on newly signed leases fall, it takes time for that to filter into the official data, because inflation metrics capture the entire stock of rental agreements, not just fresh ones.

Why core PCE at 2% deserves more airtime

Timiraos has consistently noted that before the pandemic, core PCE was already running below the Fed’s 2% target. This means that for inflation to settle back at 2%, not every single component needs to return to its exact pre-pandemic average. Some can run a little hot, others a little cool, and the math still works.

Timiraos’s component-level analysis shows core services excluding housing remain the stickier challenge, at 3.8% year-over-year, while core goods have been running relatively tame at 2.3% year-over-year. As of July 2026, shelter contributed 3.2% year-over-year to core PCE, with the overall annual core PCE rate at 3.34%.

What this means for the Fed and markets

Housing’s contribution to core PCE stood 0.3 percentage points above its pre-pandemic baseline as of March 2025, close enough that it no longer distorts the overall picture. The Fed has historically been reluctant to cut while any major inflation component looks overheated, but a disaggregated view of the data suggests housing is no longer the primary obstacle.

At 3.8% year-over-year in recent readings, core services excluding housing remains well above where the Fed would want it. Healthcare costs, insurance premiums, and financial services have their own inflationary momentum, largely independent of the forces driving shelter costs down.

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