by Calculated Risk on 12/12/2025 04:21:00 PM

A few brief excerpts from a Goldman Sachs research note on shelter inflation:

[R]apid multifamily supply growth amid a cooler labor market, slower immigration, and an already rising vacancy rate is likely to keep new lease rent growth subdued in 2026. ... We forecast that PCE housing inflation will slow to 0.22% month-over-month and 3.4% year-over-year in December 2025 and 0.16% month-over-month and 2.1% year-over-year in December 2026.

Under our forecast, the contribution from shelter inflation to year-over-year core PCE inflation shrinks from 0.7pp in the latest report to 0.6pp by December 2025 and 0.4pp by December 2026, versus 0.6pp on average in 2018-2019.

Here is a graph of the year-over-year change in shelter from the CPI report and housing from the PCE report this morning, both through September 2025.

Housing (PCE) was up 3.7% YoY in September, down from 3.9% in August and down from the cycle peak of 8.3% in April 2023.

Economists at Goldman Sachs expect this will decline to 2.1% YoY by December 2026.  This is a key reason why the FOMC expects inflation to decline in 2026 (along with less impact on inflation from tariffs).