Rents Increase as the Consumer Price Index Falls

The Bureau of Labor Statistics (BLS) reported that consumer prices decreased for the first time since April 2013. On a seasonally adjusted month-over-month basis prices decreased 0.2% in August. Over the past twelve months, prices on expenditures made by urban consumers increased 1.7% before seasonal adjustments.

In spite of the month-over-month decline in the consumer price index, the shelter index continued its ascent. The shelter index rose 0.2% month-over-month on a seasonally adjusted basis. Over the past twelve months, the shelter index increased 2.9% before seasonal adjustments.

Because shelter costs represent a large share of the average consumer’s expenditure’s, a 0.2% month-over-month increase is worth exploring further. Although the increase in the shelter index partly reflects increases in rental prices, the BLS measure does not isolate the change in rental prices from the changes in the overall price index. NAHB constructs a real rent price index to isolate the change in rental prices. The NAHB constructed 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.

The NAHB constructed real rent index increased 0.2% from the prior month. Over the past year, real rental prices rose by 1.4%.

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The month-over-month drop in the consumer price index was the result of a large decrease in the energy index which fell 2.6% from the prior month. The gasoline index, a large component of the energy index, fell 4.1% month-over-month and over the last twelve months is down 2.8% before seasonal adjustments. The natural gas index, another component of the energy index, decreased for the fourth consecutive month. On a seasonally adjusted month-over-month basis the natural gas index fell 2.8% in August.

The decrease in the energy index more than offset increases in the food index. The month-over-month increase in the food index was 0.2% in August.  Over the past twelve months the food index increased 2.7% before seasonal adjustments.

The Core CPI, which excludes more volatile food and energy prices, was unchanged from the prior month. Over the past twelve months Core CPI increased 1.7%.

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