Energy prices rebounded and the Consumer Price Index (CPI) rose moderately in October.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 2.4% in October after a 1.8% decline in September and a 0.8% decline in August. Excluding the volatile food and energy components, “core” CPI rose at a seasonally adjusted annual rate of 2.5% in October, similar to the 2.6% in September.
Energy prices have dominated inflation dynamics since mid-2014 when oil prices collapsed. In the previous two months, the sharp declines in energy prices have pulled overall inflation away from the core measure (see last month blog). However, after the steep declines in August (21.6%) and September (44.1%), energy prices rose at a seasonally adjusted annual rate of 3.5% in October. The moderate increase in energy prices in October narrowed the gap between overall and core inflation.
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 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. Real rent inflation has been volatile in 2015, reaching 2.9% in August but slowing to 1.0% in October.