Will Prices Trigger Fed Impatience?


The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in February, and was unchanged over the past 12 months. According to the latest release from the Bureau of Labor Statistics (BLS), the seasonally adjusted increase in February was broad-based, including energy.

Chart 1

The energy index increased 1.0% after seven consecutive monthly declines. The gasoline index, a component of the energy price index, increased 2.4% in February, but has decreased 32.8% over the past year.  The natural gas index, which was the only energy component to decrease in February, fell 2.0% and 3.4% over the first two months of this year, and has decreased 6.5% over the past year.

The food index also increased 0.2% in February, and the index for nonalcoholic beverages had its largest increase since September 2012 at 0.6%. The index for beef and veal increased for the thirteenth consecutive month, while the index for dairy products has decreased in the first two months of 2015.

Core CPI, which excludes the more volatile food and energy prices, has increased 0.2% in both February and January of 2015. The shelter index increased 0.2% in February, following a 0.3% increase in January.

The increase in the shelter index partly reflects increases in rental prices; the BLS measure does not isolate the change in rental prices from the changes in the overall price index. NAHB constructs a real price index by deflating the price index for rent by the index for overall inflation. This measure indicates whether inflation in rents is faster or slower than general inflation and provides insight into the supply and demand conditions for rental housing, after controlling for overall inflation. When rents are rising faster (slower) than general inflation the real rent index rises (declines).

Chart 2

Rental price increases continued to modestly outpace overall inflation, but the growth in real rental prices is expected to moderate, suggesting a better balance between the supply of and demand for multifamily rental units.

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