Energy Prices Continue to Fall

The Bureau of Labor Statistics (BLS) reported that in October that the consumer price index was unchanged on a seasonally adjusted month-over-month basis. Over the past twelve months, prices on expenditures made by urban consumers increased 1.7% before seasonal adjustments. The relatively modest growth over the last twelve months in the broader measure of consumer prices masks greater volatility in components of the index including energy, food, and shelter prices.

The energy price index fell for the fourth consecutive month dropping 1.9% in October on a seasonally adjusted month-over-month basis. The gasoline index, a component of the energy index, fell 3.0% in October and is down 8.0% over the last three months. The natural gas index fell 2.7% from the prior month after a 1.6% increase in September.

The month-over-month increase in the food price index was 0.1%.  Over the past twelve months the food index increased 3.1% before seasonal adjustments. The largest month-over-month increase for any component of the food price index was a 0.9% increase in the fruit and vegetable index.

The Core CPI, which excludes more volatile food and energy prices, rose 0.2% month-over-month. Over the past twelve months Core CPI increased 1.8%.

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

Because shelter costs represent a large share of the average consumer’s expenditures, 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 was virtually unchanged in October month-over-month. Over the past year, however, growth in real rental prices outpaced growth in the CPI. Real rental prices rose by 1.5% from October 2013.

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