CPI Up on Gasoline, Real Rental Prices Also Rise

After two months of no change, the Consumer Price Index for Urban Consumers (CPI-U) rose by 0.7% in February. According to the release, energy prices accounted for much of the increase in the CPI-U. In February, energy prices rose by 5.4%, reversing three consecutive month-over-month declines. Gasoline prices rose by 9.1% while fuel oil, which is a component of housing energy, rose by 3.1%. Meanwhile, food prices grew by 0.1%. Core inflation, which excludes more volatile energy and food prices, grew by 0.2% in February. Over the past twelve months both headline and core inflation have risen by 2.0%.

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NAHB constructs a real price index by deflating the price index for rent by the index for overall inflation. This measure indicates whether inflation in rents is faster or slower than general inflation and provides some insight into the supply and demand conditions for rental housing, after controlling for overall inflation. When rents are rising faster (slower) than general inflation the real rent index rises (declines). Previous research suggests that the core inflation index may provide a more reliable comparison between rents and overall inflation since the price index for overall inflation has been reflecting volatility in energy prices.

Chart 2 illustrates how the US average of real rental prices has performed since January 2000. According to this chart, real rental prices rose by 16.0% between January 2000 and January 2009. After peaking in January 2009, real rental prices steadily declined between January 2009 and August 2010. However, they remained 14.6% above their January 2000 level after this period. The real rent index restarted a sustained ascent in July 2011, following ten months in which it was relatively flat. In February 2013, the real rent index returned to the level last seen in January 2009.

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