Energy Prices Continue to Rise While Rents Lag General Inflation

The Bureau of Labor Statistics (BLS) released October Consumer Price Index (CPI) numbers today. The CPI for All Urban Consumers rose 0.2% in October, up from 0.1% in September. On a year-over-year basis the index was up 1.2%.

Most of the increase came from higher energy prices, with the CPI for energy rising 2.6%, its fourth monthly increase following three months of decline. Core CPI, which excludes food and energy prices, was unchanged for the month, and up a modest 0.6% from a year earlier.

The rental component of the CPI rose slightly—up 0.1%—and rose 0.3% from a year earlier. Owner’s equivalent rent, which is largely driven by the rent index without utilities and can be used as a measure of homeownership “prices”, also rose 0.1%, but was unchanged from October 2009.

The rent and owner components of the CPI make up 32% of the CPI. The soft rental market and excess vacancies have kept rents from rising as fast as the general CPI, which has been a challenge to apartment owners who have seen other costs rising. It also has made it more difficult for multifamily projects to obtain financing.

However, there are signs that the rental market may be improving. The percentage of households renting has risen from a low of 30.8% in fourth quarter 2004 to 33.1% in third quarter 2010. Also, the absorption rate of new apartments increased in the second quarter.



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