The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) declined at a seasonally adjusted annual rate of 1.8% in September after slipping 0.8% in August. Excluding the volatile food and energy components, the “core” CPI rose at a seasonally adjusted annual rate of 2.6% in September, faster than 0.9% in August.
In September, energy prices dropped sharply at a seasonally adjusted annual rate of 44.1%, continuing the seesaw pattern since mid-2014, accounting for most of the decrease in the CPI.
Energy prices have dominated inflation dynamics since mid-2014 when oil prices began their collapse. Steep declines in energy prices since the middle of last year pulled the overall inflation away from the core measure. Large increases in May and June narrowed the gap between the overall and core inflation significantly. However, the big drops in energy prices in August and September distanced the overall inflation from the core measure again.
A “real” rent index can be constructed to indicate whether the inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile energy component).
After declines during the recession, inflation in real rents accelerated from 2012 to 2014, a period of strong recovery in the multifamily sector, reaching a peak average annual rate of 1.7% in 2014. Real rent inflation had been slowing from its peak in the third quarter of 2014 but accelerated to 2.5% in the third quarter of 2015.