CPI in March — A Modest Increase in Core Inflation

The Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) for March. Core inflation rose modestly in March.

The Consumer Price Index rose at a seasonally adjusted annual rate of 1.1% in March, after a 2.0% decline in February. Excluding the volatile food and energy components, the “core” CPI rose at a seasonally adjusted annual rate of 0.8% in March, slowing from the 3.4% in February and 3.6% in January. In March, energy prices increased at a seasonally adjusted annual rate of 12.0%, after the steep declines in February (52.1%).

Core inflation has been relatively low during the recovery. The jumps in January and February were mainly driven by the large increases in the prices of medical care and apparel. In March, the prices of apparel dropped and price increases for medical care slowed, contributing to the slowdown in core inflation. Absent recent large swings in the volatile components core inflation is expected to hover near the 2% average of 2015.

Figure 1_Mar

A “real” rent index is constructed to indicate whether 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 food and energy components).

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. In 2015, real rent inflation slowed down slightly, averaging 1.6%. In the first quarter of 2016, real rent inflation averaged 1.0%.

Figure 2_Mar



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