The latest consumer price index (CPI) numbers are in. Overall prices were up 3.1% in January from the same time a year ago, and so-called “core” inflation excluding volatile categories like food and energy was at 3.9%. Not bad, but still higher than where observers had been expecting it to go.

After a dramatic free-fall from the summer of 2022, inflation has spent a stubborn six months hovering around a 2-something reading. In the foreground, this is frustrating to consumers who want to know that the things they need to buy everyday won’t keep getting more expensive. In the background, this is frustrating to the Federal Reserve, which has been dealing the belly-aching of Wall Street and corporate America begging for lower interest rates.

What gives? Housing.

Roofs over heads, basement under disinflation

The Bureau of Labor Statistics noted in its statement accompanying the CPI data that “shelter” costs (housing) contributed to two-thirds of inflation. And that number was up 6% in January. In fact, inflation without housing was only up 1.6%.

The Fed pays closer attention to personal consumption expenditure (PCE) index inflation, which says more about the prices that people are actually paying instead of what they’re offered. But shelter inflation does tell us more about why it’s been so hard to bring overall inflation down.

Between a house and a hard place

At the news conference in which Fed chairman Jerome Powell explained why the central bank decided once again not to cut interest rates, a reporter asked about rising rent prices, which were up almost 24% from the year before (which is actually an improvement, believe it or not).

Powell responded by noting that it’s not the Fed’s primary responsibility, which is a dual mandate of low unemployment and stabile overall prices.

“We’re not targeting housing price inflation, the cost of housing, or any of those things,” he said. “Those are very important things for people’s lives. But those are not the things we’re targeting.”

While there are lots of reasons that housing prices have been rising as quickly as they have — city dwellers fleeing for the suburbs during the work-from-home era then fighting to come back after they got bored, hedge funds and other finance types seeking returns in your rent check, the difficulty of building enough new housing for everyone that needs it — the Fed doesn’t really have the means to deal with any of that besides making money cheaper or more expensive.

“These are not things that we have any tools to address,” Powell said.