Consumer Inflation Slowed in May Following a Sharp Increase in April

The Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) for May. Overall inflation decelerated after an energy induced sharp increase in April, while core inflation (excluding food and energy) increased slightly.

The Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 2.6% in May, down from 5.0% in April. Excluding the volatile food and energy components, “core” CPI rose at a seasonally adjusted annual rate of 2.5%, slightly higher than the 2.4% in April. The price index for a broader set of energy sources rose at an annual rate of 16.0%, slowing from the 50.2% in April.

As mentioned in the previous month, headline inflation has been heavily influenced by energy prices since mid-2014. In May, the deceleration in energy prices, as well as declines in food prices, have contributed to the decline in headline inflation. Excluding the volatile food and energy prices, core inflation rose slightly in May, in contrast to headline inflation. Given the volatility of food and energy prices, core inflation is a better indicator of broad based inflation trends.

Figure 1_May

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 2016, real rent inflation was averaging 1.3% for the first five months.

Figure 2_May



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