U.S. inflation came in at an annualized rate of 3.7% in September, with the cost of shelter serving as the most significant factor in the increase, the Bureau of Labor Statistics reported Thursday.

The 3.7% rate of inflation last month matched that of August and is slightly higher than June's 3.2%, which was welcome news to the commercial real estate industry and the broader economy.

Although overall inflation has been tamped down somewhat by interest rate hikes, the shelter index remains stubbornly high, albeit lower than it was earlier this year.

The shelter index increased by 7.2% year-over-year in September, the BLS reported, down from the most recent peak of 8.2% in March.

Rent is the biggest component of the shelter index, along with owners' equivalent rent and the lodging away from home index.

The core rate of inflation, which removes volatile food and energy prices, came in at an annualized 4.1%, with shelter being the main component of that increase as well.

Housing economist Jay Parsons, posting on X, formerly Twitter, said the shelter index — which is lagging, unlike the other components of the consumer price index — will continue to decline, easing overall inflation.

“That doesn't mean everyone's rent is going down (though some will) or that we're reverting to pre-Covid levels,” Parsons said. “But it does mean that peak rent inflation is a thing of the past.”

The September inflation report is the last one before the next meeting of the Federal Open Market Committee early in November, which will decide whether to raise interest rates. In September, the central bank elected to hold interest rates steady but left open the possibility of further hikes.

“A majority of participants judged that one more increase in the target federal-funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted,” according to the minutes from the Fed’s Sept. 19-20 policy meeting.