Data released by the Bureau of Labor Statistics indicates that consumer prices rose by 0.2% on a seasonally adjusted month-over-month basis in July. In June, the Consumer Price Index – Urban Consumer (CPI) increased by 0.5% month-over-month. Over the past twelve months, prices on expenditures made by urban consumers (as opposed to expenditures made by wage earners), grew by a not seasonally adjusted rate of 2.0%.
The slower pace of growth in the CPI partly reflects a deceleration in energy prices, especially energy commodities such as gasoline. The prices of energy services such as electricity declined over the month. In July, the Energy Price Index rose by 0.2% month-over-month after rising by 3.4% in June. Gasoline prices, which grew by 6.3% month-over-month in June, grew by only 1.0% in July. Electricity prices, which increased by 0.2% in June, fell by 0.3% in July. Meanwhile food prices, which grew by 0.2% in June, rose by 0.1% in July. Core CPI, which excludes more volatile food and energy prices, rose by 0.2% in month-over-month in July, matching the increase of this measure in both May and June. Over the past twelve months Core CPI has risen by 1.7%.
The month-over-month increase of consumer prices in July largely reflects growth of shelter prices, which rose by 0.2% over this period. A previous blog post showed that shelter prices represent the largest consumer expenditure in the CPI. As a result, the 0.2% increase in shelter prices will have a sizeable impact on headline CPI and a larger impact on Core CPI. The increase in shelter prices partly reflects the 0.2% increase in rental prices. However, this measure does not isolate the change in rental prices from the changes in the overall price index. To accomplish this, NAHB constructs a real rent price index by deflating the price index for rent by the index measuring core 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 (or slower) than general inflation the real rent index rises (declines).
As Chart 2 illustrates, real rental prices fell in 2009. This decline in real rental prices corresponds to a period when the rental vacancy rate was high. Recently, real rental prices have begun to rise. The real rent index has increased for six consecutive months and 11 of the last 12 months. In July, the real rent index rose by 0.1%. Over the past year, the real rental prices have risen by 1.1%. The increase in real rental prices corresponds with a recent decline in the rental vacancy rate.