Surging rents across many developed economies are proving to be a stubborn hurdle for central banks as they struggle to nail down inflation once and for all in this tightening cycle.
In the U.S., U.K., Canada and Australia, rapidly rising housing costs — which have a hefty weighting in consumer price index baskets — are preventing inflation from declining closer to central banks’ targeted levels. The danger is that workers will demand even fatter pay checks to deal with the cost-of-living squeeze, undermining the inflation fight even further.
The upshot: The disinflation momentum seen through most of last year has all but stalled in some developed economies. That’s leading financial markets to either push back bets for interest-rate cuts, as seen in the U.S., or reinstate odds for further rate hikes, as is the case in Australia.
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