Consumer Price Index in August – Strong Gain

The Consumer Price Index (CPI), released by the Bureau of Labor Statistics (BLS), rose in August.  Headline inflation increased from negative to positive due to the strong gain in the core CPI.

The Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 2.4% in August, after a 0.5% decrease in July. Excluding the volatile food and energy components, “core” CPI rose at a seasonally adjusted annual rate of 3.1%, faster than the 1.1% increase in July. The price index for a broad set of energy sources decreased at an annual rate of 0.1%, after the big drop in July.

Headline inflation has been heavily influenced by energy prices since mid-2014. The shifts in headline inflation in the previous several months were mainly the contribution of the big jumps or drops in energy prices in the related months. However, energy prices were barely changed in August. Instead of energy prices, the big increase in core inflation accounted for the most increase in headline inflation. The prices of medical care soared, contributing to the increase in core inflation.

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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%. Real rent inflation slipped to 0.8% in August of 2016 after a 2.3% increase in July.

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