If Trump wants to end inflation, the first thing he must do is build more housing.

If President-elect Donald Trump wants to reduce inflation to a more tolerable level, he will need help from housing costs, an area where federal authorities have only limited influence.

November’s consumer price index report contained mixed news on the housing front, which accounts for a third of the closely watched inflation index.

For one thing, the category posted its smallest annual increase since February 2022. Additionally, two key rental-related components within the measure posted their smallest monthly gains in more than three years.

But on the other hand, the annual increase remained 4.7%, a level that, excluding the Covid era, was last seen in mid-1991, when CPI inflation was around 5%. Housing contributed about 40% of the monthly increase in the price indicator, according to the Bureau of Labor Statistics, more than food costs.

Now that the annual CPI rate is rising to 2.7% (3.3% if food and energy are excluded), it is not clear that inflation is consistently and convincingly returning to the 2% target of the CPI. Federal Reserve, at least not until housing inflation declines further.

“You would expect that over time we would start to see slower year-over-year growth in rents,” said Lisa Sturtevant, chief economist at Bright MLS, a Maryland-based listing service that covers six states and Washington, D.C. “Though It seems like it’s taking a long time.”

In fact, housing inflation has seen a slow and uneven decline since peaking in March 2023. Like the headline CPI, housing components continue to rise, albeit at a slower pace.

The housing problem has been caused by a continuous cycle of supply outstripping demand, a condition that began in the early days of Covid and has yet to be resolved. Housing supply in November was about 17% below its level five years ago, according to Realtor.com.

Rentals have been a particular focus for policymakers, and the news there has also been mixed.

The national average rent in October stood at $2,009 a month, slightly less than in September but still 3.3% higher than a year ago, according to housing market site Zillow. Rents in the last four years have increased about 30% nationally.

Regarding housing, costs also continue to rise, a condition exacerbated by the high interest rates that the Federal Reserve is trying to reduce.

Although the central bank has reduced its benchmark borrowing rate by three-quarters of a percentage point since September, and is expected to reduce another quarter of a point next week, the typical 30-year mortgage rate has actually risen almost as much as it has. made by the Federal Reserve. cut during the same period of time.

All of the converging factors represent a potential threat to Trump, whose policies such as tax breaks and tariffs will, according to some economists, exacerbate the inflation dilemma.

“We know that some of the initiatives proposed by the president-elect are quite inflationary, so I think the prospects for continued progress toward 2% are less certain than they might have been six months ago,” Sturtevant said. “I don’t feel compelled by anything in particular that suggests that addressing the supply problem is something the federal government can do in any meaningful way, certainly not anytime soon.”

During the presidential campaign, Trump made deregulation a cornerstone of his economic platform, and that could extend to the housing market by opening up federal lands for construction and generally lowering barriers for homebuilders. Trump has also been a strong advocate for lower interest rates, although monetary policy is largely out of his reach.

Trump’s transition team did not respond to a request for comment.

The mood on Wall Street was generally optimistic regarding the real estate outlook.

“Rents may finally be normalizing to levels consistent with 2% inflation,” Bank of America economist Stephen Juneau said in a note. November housing data “will be seen as encouraging at the Fed,” wrote economist Krushna Guha, head of central bank strategy at Evercore ISI.

Still, housing expenses “remain the primary source of higher prices, and the fact that the pace of increase has slowed is no consolation,” said Robert Frick, corporate economist at Navy Federal Credit Union.

That could cause problems for Trump, who faces a potential vicious cycle that will make easing the housing burden difficult to solve.

“We’re not going to lower rates until housing costs go down. But housing can’t go down until rates are lower,” Sturtevant said. “We know there are some wild cards that we might not have talked about two or three months ago.”