Decline in Energy Prices in December


The Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) for December.

The Consumer Price Index (CPI) declined at a seasonally adjusted annual rate of 1.3% in December, after rising in the previous two months, 2.4% in October and 0.3% in November. Excluding the volatile food and energy components, the “core” CPI rose at a seasonally adjusted annual rate of 1.5% in December, following the 2.5% and 2.2% increases in October and November, respectively. In December, energy prices declined at a seasonally adjusted annual rate of 25.0%, following 14.1% in November.

The fluctuation of energy prices accounts for most of the volatility in the CPI inflation. The decline in energy prices in December pulled down the CPI inflation and widened the gap between the CPI and core CPI inflation. Energy prices continue to add uncertainty to the CPI inflation outlook.

Figure 1_December

A “real” rent index is 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 slowed down slightly in 2015, averaging 1.6% from January to December.

Figure 2_December

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