Rent is driving inflation. But there’s something off in the data.

Inflation came in hotter than expected in January, and it may take a few more months to know if that was a fluke or if price increases are getting stickier. But one key part of the inflation picture may already look far worse than things really are.

Rent costs have been driving inflation for months, at least in the way data shows up in the official reports. The Federal Reserve has pushed its baseline interest rate to the highest level in decades, and prices in most other areas are moderating. So it’s been a bit of a mystery to economists why rent hasn’t followed suit. That’s especially because almost every data source, except the consumer price index kept by the Bureau of Labor Statistics, shows that those costs actually are cooling significantly - or even falling - since growth peaked early last year.

Fresh data from Apartment List shows that rents fell for six consecutive months before ticking up slightly in February. Costs on leases are down 1 percent compared with a year ago nationwide, with more than half of nation’s largest cities seeing drops. In Austin, costs fell 6.7 percent. In Atlanta, 5.3 percent. And in Nashville, 5.1 percent.

It’s the kind of turnaround housing experts are closely tracking in real-time data, especially as hundreds of thousands of new homes come on the market and boost supply after years of shortages. Demand has also settled down as tenants stay put, unlike in the frenzied days during the coronavirus pandemic.

But that shift isn’t showing up much - if at all - in official inflation reports. In January, a key measure of housing costs ticked up over the previous month. The CPI also shows shelter costs up 6 percent compared with one year ago - down from a peak of 8.1 percent, but still leaps above normal.

Economists are quick to say that a pivot is coming and that January data is often riddled with seasonal glitches that push inflation up. They also argue that real-time metrics just take time to break through the wonky math behind the BLS calculations. That’s partly because an individual unit is only captured in the surveys every six months, even if the lease’s cost changed in the interim. Plus, the BLS tracks rents for all tenants, not just those starting new leases - people staying put for a year or more might not see their costs change as rapidly.

But experts and policymakers are still scratching their heads as to why the split remains so pronounced month after month.

“We’re watching a big mountain of snow melt, and every 10 minutes, we look and there’s still a big pile of snow,” said Igor Popov, chief economist at Apartment List. “We’re just watching it so carefully it doesn’t feel like we’re seeing much progress.”

Overall, inflation has made significant progress since soaring to 40-year highs. Energy prices have come way down since spiking after Russia’s invasion of Ukraine. Supply chains have healed enough to tame prices for all sorts of goods, from electronics to bicycles. And while January’s inflation snapshot chipped away at some of that progress, it followed enough months of improvement that central bankers are eyeing multiple interest rate cuts this year.

Still, housing continues to drive overall inflation readings. And the longer that continues, the more difficult the Federal Reserve’s fight against inflation could become. Rent makes up a large chunk of the CPI. That means the Fed won’t be able to get overall inflation down to normal levels until housing simmers down, too. (The Fed prefers to use a different inflation benchmark than the consumer price index, but the central bank’s favored metric, personal consumption expenditures, also puts a heavy weight on housing.)

Part of the puzzle is that inflation changes slowly. Even when real-time rents are stable or falling, economists know they have to look way down the line for those shifts to compound over time.

Orphe Divounguy, senior economist at Zillow, posed a hypothetical scenario where market rent growth stops completely. Even then, it would take another two years of flat readings to drag down the entire shelter index to a more normal 2 percent.

“That’s how strong the forces of undersupply are,” Divounguy said.

The housing market was turned on its head during the pandemic. But experts point to years, even decades, of sluggish housing construction before then that meant the country didn’t have enough homes when the pandemic hit. Suddenly starting in 2020, people wanted to move quickly, split off from roommates or stretch out into more space. Before long, the surge in demand collided with the lack of supply.

Eventually, new projects broke ground as supply chains cleared their backlogs and construction hiring ramped up. As part of that catch-up, hundreds of thousands of units debuted last year, with another million slated for 2024. Analysts expect prices to cool even further as that inventory continues to grow.

Yet other parts of the housing market haven’t exactly performed as expected. High interest rates typically slow the market for home purchases by driving mortgage rates up, making it harder for buyers to afford houses unless prices drop. But the sector has proved remarkably resilient, with home prices still inching up despite mortgage rates hovering around 6 or 7 percent.

Still, the Fed is betting rent inflation will break its way. At a January news conference, Fed Chair Jerome H. Powell said it was “in everyone’s forecast” that the shift would eventually happen.

“We think that’s coming, and we know it’s coming,” Powell said. “It’s just a question of when and how big it’ll be.”

Much of the country may already be there. Take Florida, which saw some of the country’s highest rent growth during the pandemic surge. Supply is growing fast: Miami and Orlando both have more than 20,000 apartment homes under construction, accounting for over 10 percent of the overall inventory in those markets, according to the Florida Apartment Association.

Now major cities in Florida are posting rent drops. Rent in Jacksonville is down 3 percent compared with last year. Orlando saw the same drop.

Even in the markets that are still seeing rent growth, the gains are much more modest. In Miami, rents were up almost 4 percent at the start of 2023. One year later, prices rose only by 1.7 percent.

“We understand there has to be a rubric that works for reporting out a much broader data set,” said Chip Tatum, executive vice president of the Florida Apartment Association. “But when you get down to it in a more granular level, it’s much more complex than that data set would suggest. The lags don’t always match what the market is dictating.”

That picture is all part of why economists remain optimistic that the lags will be overcome - eventually. Jay Lybik, national director of multifamily analytics at CoStar, said it typically takes market rent about three-quarters of the year to filter into government statistics. That timeline may be getting stretched out given how bizarrely the economy has performed and how off models have been as a result. But hopes haven’t been dashed yet.

“The way the [CPI] looks at housing in general,” Lybik said, “just doesn’t seem to match reality.”