A data distortion from the 2025 government shutdown is expected to show a sharp, one-off acceleration in housing inflation, complicating the Federal Reserve’s path to its 2 percent target.
Economists are bracing for April’s inflation report to show an accelerated 0.4 percent monthly rise in core prices, driven largely by a statistical anomaly in housing data that could push the annual rate to 2.7 percent.
"It’s a pretty big jump–more than double what it’s been doing the last couple of months,” Omair Sharif, founder of Inflation Insights, said, estimating housing will add about a 0.25 percentage point to April's core inflation.
The expected surge stems from the 43-day government shutdown in 2025, during which the Bureau of Labor Statistics recorded a zero for housing inflation. The April data will replace that distorted figure, with Zillow estimating owner’s equivalent rent (OER) will jump 0.44% month-over-month and rents will rise 0.39%.
While the jump is technical, it highlights the precarious nature of the Fed's inflation fight, where progress is heavily reliant on cooling shelter costs. An unexpectedly sticky reading could challenge the narrative of a smooth return to the 2 percent target and force a hawkish reassessment from policymakers.
The core of the issue lies in how the Bureau of Labor Statistics collects rent and OER data. Surveys are conducted in panels every six months, and the zero reading from October 2025 during the government funding lapse has lingered in the data. April marks the first report where that distorted data point will be replaced by a fresh survey, causing a one-time step-up in the index.
FactSet's survey of economists aligns with this view, projecting a 0.4% month-over-month rise in core CPI and a 2.7% annual gain, an acceleration from March’s 2.6% reading. This comes as mortgage rates have already climbed to 6.37% ahead of the key inflation data, tightening financial conditions for prospective homebuyers.
While many economists, including Zillow’s Treh Manhertz, anticipate housing inflation will resume its cooling trend after the April correction, the path forward is uncertain. "There is an offset coming from rents, but we expect that to just not be quite enough to get inflation back down to target—even far out in the future,” said James Egelhof, BNP Paribas’ chief U.S. economist.
The Federal Reserve's strategy for returning to its 2 percent inflation goal is heavily dependent on a continued slowdown in shelter costs, which constitute about 40% of the core CPI basket. However, the nature of rent inflation may prove problematic.
Most alternative rent indicators, which show softening prices, focus on new leases. The CPI calculation, however, is more heavily skewed toward continuing rents. There is emerging evidence that these continuing rents are not cooling as quickly as hoped. Real estate investment trusts like UDR and Mid-America Apartment Communities (MAA) have reported solid rent gains from continuing tenants, a momentum that has carried into 2026.
“We’re getting into a much tougher stretch where the marginal reduction in inflation that was coming from shelter is slowing,” Sharif says. If housing inflation remains stubbornly high, it removes a key pillar of the disinflationary thesis, leaving Fed officials with fewer reasons to believe price pressures will tame in the near term and potentially delaying any monetary policy easing.
This article is for informational purposes only and does not constitute investment advice.
