Consumer Price Index Dropped Slightly in July

The Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) for July. Headline inflation dropped below zero due to the deceleration in the core CPI and the decline in energy prices.

The Consumer Price Index (CPI) dropped at a seasonally adjusted annual rate of 0.5% in July, after a 2.6% increase in June. Excluding the volatile food and energy components, “core” CPI rose at a seasonally adjusted annual rate of 1.1%, slowing from 2.1% in June. The price index for a broad set of energy sources decreased at an annual rate of 17.4%, after rising in the previous four months.

Headline inflation has been heavily influenced by energy prices since mid-2014. The positive headline inflation in the previous four months was mainly the contribution of the significant increases in energy prices in the related months. After four consecutive increases in energy prices, in July the drop in energy prices and the decrease in the pace of core inflation together dragged headline inflation down.

Figure 1_July

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. Real rent inflation has hovered in a very narrow range in 2015 and 2016.

Figure 2_July

 



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