Bureau of Labor Statistics: Inflation Sets the Floor, Not the Ceiling

Recent data from the U.S. Bureau of Labor Statistics shows that consumer prices rose 2.7% year-over-year in 2025, a meaningful deceleration from the inflation peaks of 2022–2023 but still above the Federal Reserve’s long-term 2% target. The BLS report highlights continued cooling in goods inflation, partially offset by persistent price pressures in services such as housing, insurance, and healthcare. While inflation is no longer accelerating, it is proving “sticky” at a level higher than many investors once expected.

Our Take

For private market investors, this data point is less about month-to-month volatility and more about what it signals for the baseline economic environment in 2026 and beyond. A 2.7% inflation rate suggests the economy may be settling into a regime where inflation is structurally higher than the pre-COVID norm. That matters because inflation expectations help anchor interest rates, which in turn influence asset pricing, financing costs, and return thresholds across private real estate and private credit.

In commercial real estate—particularly industrial—this environment reinforces a more disciplined underwriting mindset. Cap rates are unlikely to compress meaningfully if long-term interest rates remain elevated, even if the Federal Reserve eventually cuts short-term rates. Investors should therefore place greater emphasis on durable cash flow growth, conservative exit assumptions, and realistic rent projections rather than relying on valuation expansion. On the positive side, moderate inflation can support rent growth over time, especially in supply-constrained industrial markets, helping stabilize real returns for well-located assets.

For private credit, “sticky” inflation supports the case for higher-for-longer base rates, which has been a tailwind for floating-rate lenders. However, it also raises the bar for borrowers. Higher operating costs and refinancing rates increase stress on marginal credits, making underwriting quality and borrower selection more important than headline yields. Investors should expect greater dispersion in outcomes: strong sponsors and assets may perform well, while weaker credits face refinancing risk.

Overall, the 2025 inflation data underscores a key shift for private market investors: the post-zero-rate world is not a temporary phase. Returns will be driven less by financial engineering and more by fundamentals—cash flow durability, balance sheet strength, and thoughtful risk pricing.

Source: Consumer Price Index: 2025 in Review

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