Consumer Prices in May – Energy Prices Rose Sharply


The Bureau of Labor Statistics (BLS) reported consumer prices increased in May. The Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 5.5%, a large increase compared to 1.2% in April, and the first three months of this year. Excluding the volatile food and energy components, the “core” CPI rose at a seasonally adjusted annual rate of 1.8% in May.

Energy prices rose sharply in May at a seasonally adjusted annual rate of 66.2%, the highest level in the past two years, accounting for most of the increase in the CPI.

Large swings in energy prices account for most of the divergence between CPI and the core measure in recent years. Steep declines in energy prices since the middle of last year widened the gap between overall and core inflation. Increases in energy prices in February and March narrowed the gap, but, after the declines in energy prices in April, the sharp increases in energy prices in May sent the all items CPI and core measures in opposite directions again.

Figure 1_May2

A “real” rent index can be constructed to indicate whether the 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 energy component).

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 slowed in 2015, averaging 1.2% from January to May.

Figure 2_May

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