For much of the past few years, Americans have felt the pinch of higher costs from groceries and gas to rent and wages. Inflation surged after the pandemic, fueled by disrupted supply chains, stimulus-driven demand, and a red-hot job market.
But now, new data suggests that two of the strongest inflation drivers wage growth and housing costs are finally cooling down. According to a recent analysis by RIA Advisors, this slowdown could be the signal economists and policymakers have been waiting for: the beginning of true inflation relief.
Wages Are Coming Back to Earth
The U.S. labor market has been surprisingly strong throughout the past few years. Even as layoffs hit some industries, others continued hiring at record levels. As a result, wages grew rapidly sometimes faster than productivity pushing prices higher in the process.
However, the latest figures show that this wage acceleration may be losing steam.
The Federal Reserve Bank of Atlanta’s Wage Growth Tracker reveals that wage growth is steadily declining and returning closer to pre-pandemic levels.
Even more telling, aggregate hours worked a measure of total labor activity has slipped below pre-pandemic highs and now matches levels last seen in 2010. That means the overall demand for labor is no longer overheating, easing the pressure on businesses to raise wages aggressively.
In short, the once-powerful “wage-price spiral” where higher pay drives higher prices is showing clear signs of cooling.
Housing and Rent Inflation Are Showing Cracks Too
If there’s one expense that has weighed heavily on households, it’s housing.
Rent prices skyrocketed after the pandemic, as demand outpaced supply and homebuyers were priced out of ownership by rising interest rates.
Shelter costs now make up nearly 44% of the Consumer Price Index (CPI) which means even modest changes in rent can significantly influence overall inflation numbers.
The good news? The housing market is shifting.
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Apartment vacancy rates have climbed above pre-pandemic averages.
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New multifamily housing projects are being completed nationwide, adding thousands of new units.
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Rental growth has flattened, and in some cities, it’s even turning negative.
This change won’t immediately show up in official inflation reports, because CPI rent data lags behind market trends by several months. But economists expect those effects to flow through soon, potentially dragging inflation lower in the coming quarters.
Why This Matters for Inflation and the Fed
The Federal Reserve has been fighting inflation with aggressive interest rate hikes since 2022. While those hikes helped cool the economy, they also risked tipping it into a recession.
If rents and wages continue to stabilize, inflation could move closer to the Fed’s 2% target without the need for further rate increases. That’s the best-case scenario a “soft landing” where inflation eases naturally and growth slows, but the economy avoids a major downturn.
For policymakers, this trend is a relief. It means the most stubborn parts of inflation like shelter and services tied to wages are finally moving in the right direction.
What to Watch Next
Even with promising signs, the article warns that the battle isn’t over yet.
Inflation can be unpredictable, and several risks remain on the horizon:
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Labor shortages could reemerge if hiring picks up faster than expected.
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Global supply disruptions or energy price shocks could add new pressures.
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Lagging rent data might delay the full effect of lower housing costs in CPI reports.
Still, the overall trend looks positive: wages and rents the two pillars that drove the inflation surge are slowly but steadily cooling.
What It Means for Renters, Landlords, and Property Managers
This trend isn’t just about economic theory it has real-world effects for the housing market:
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For Renters:
A slowdown in rent growth could bring long-awaited stability. In many metro areas, renters who faced double-digit rent hikes in recent years might finally see modest or even flat increases. -
For Landlords and Property Managers:
With more inventory entering the market and vacancies rising, owners may need to focus more on tenant retention and property upkeep rather than aggressive rent increases. Offering incentives, improving maintenance responsiveness, or adding community amenities could make a big difference in staying competitive. -
For Investors:
Real estate investors might see short-term profit compression, but the longer-term stability is healthier for the market. A more balanced rental environment tends to attract sustainable demand and reduces turnover costs.
A Turning Point in the Housing-Inflation Story
For years, housing and wages kept the inflation fire burning. Now, they might be the forces helping to cool it down.
If these trends hold, 2025 could mark a transition period from rapid cost increases to gradual stabilization across the economy.
For anyone involved in housing whether managing properties, investing, or renting keeping an eye on wage growth, vacancy rates, and rent trends will be crucial. These numbers don’t just reflect inflation they shape it.
Source: Wages And Rents Portend Easing Inflation Tailwinds – RIA Advisors