Rent inflation is coming back down to earth.

Driving the news: The month-over-month pace of rent growth was 0.5% in March; a drop from the second half of 2022 when the monthly numbers were hovering at 0.8%.

• That could signal further drops to come. "The rollover in rents is finally underway," wrote Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, in a note.

Why it matters: The monthly data is a bright spot for rent prices because the annual number is still coming in hot — with rents up nearly 9% in March compared to last year, it was the highest number since 1981.

The big picture: The shelter component of CPI comprises 40% of the index overall, and is a big reason inflation remains stubbornly high.

• "The index for shelter was by far the largest contributor to the monthly all items increase," the Labor Department emphasized in its news release. (Overall inflation in the last year is just under 5%.)

Zoom out: The way the department measures rent in the CPI is different from other data sources, which only look at new asking rents, i.e., what a landlord charges on a new lease.

• CPI essentially takes in all rent prices; what everyone is paying in a certain month. (We've explained this before.)
• Zeroing in on the asking rent data serves as a good leading indicator of where the CPI rent measure is headed. And those numbers have been moderating since last year.
• Zillow's rent index shows that rent increases peaked in February 2022. Data from RealPage, a real estate analytics and software company, shows a March 2022 peak.

What they're saying: "The rapid cooldown in rent growth continues to show up everywhere except in the one place that arguably matters most," said RealPage chief economist Jay Parsons in a LinkedIn note Wednesday.

The intrigue: Falling rents, or at least rent that's not rising at a rapid clip, is undoubtedly good for renters who've been getting crushed over the past few years. But for the real estate sector, it's a growing problem.

• Property values on multifamily apartments are falling at the same time that interest rates are soaring and landlords' ability to push rents up even higher is weakening.
• That's an issue for anyone who bought buildings in 2021, when rates were rock-bottom, using a floating rate mortgage, as the WSJ explains. The market's already seeing some foreclosures.

The bottom line: Rents are still pretty high, but the astronomical increases we've seen are likely going away.

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