Rents Outpace Growth in Consumer Prices

The Bureau of Labor Statistics (BLS) reported that the prices on expenditures made by urban consumers increased over the last twelve months by 1.7% before seasonal adjustments. Consumer prices increased in September by 0.1% on a seasonally adjusted month-over-month basis. Modest and consistent gains in the consumer price index (CPI) mask greater volatility in energy, food, and shelter prices.

The month-over-month increase in the food price index was 0.3%.  Over the past twelve months the food index increased 3.0% before seasonal adjustments. The index for meats, poultry, fish, and eggs continued to climb as the index grew 0.7% month-over-month.

The energy price index dropped 0.7% month-over-month in September following a large 2.6% drop in August. All components of the energy index decreased from the prior month with the exception of natural gas. The natural gas index increased 1.6% from the prior month after four consecutive months of decline.

The Core CPI, which excludes more volatile food and energy prices, rose 0.1% month-over-month. Over the past twelve months Core CPI increased 1.7%.

Chart1

The shelter index rose 0.3% month-over-month in September after increasing 0.2% month-over-month in August.  Over the past twelve months, the shelter index increased 3.0% before seasonal adjustments.

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 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 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).

Chart2

Rents continue to outpace growth in the CPI. The real rent index increased in September 0.2% month-over-month and 1.5% over the past year.



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1 reply

  1. Of course rents are rising and they will continue to do so as long as housing policy makes it more difficult to buy a first home. Over 25% of the first-time buyers normally participating in the real estate market are no longer in the market and must live somewhere. The increased demand for rental units will continue to drive rents upward until someone in Washington wakes up and reverses most of the changes made to FHA financing that were designed to “save FHA” but have destroyed housing to do it. My question is, what good has saving FHA done if there are no buyers to use it?

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