Large Rise in the Core CPI in January


The Consumer Price Index (CPI), released by the Bureau of Labor Statistics (BLS), was relatively flat in January. It rose at a seasonally adjusted annual rate of 0.3%, after slipping 1.3% in December. Excluding the volatile food and energy components, the “core” CPI rose at a seasonally adjusted annual rate of 3.6% in January, from 1.9% in December. In January, energy prices declined at a seasonally adjusted annual rate of 28.5%, following the 28.5% decline in December.

Recently, core inflation has been relatively stable, hovering around 1.9% on average, while headline inflation has been moving along with energy prices up and down. In contrast to recent history, in January, as energy prices tumbled, headline inflation was flat instead of declining. The reason was because there was a significant increase in core inflation driven mainly by increases in the prices of medical care and apparel, offsetting the steep decline in energy prices.

Figure 1_Jan

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 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%. In the January of 2016, real rent inflation dropped down to -0.1%, influenced heavily by the unexpected jump in core inflation.

Figure 2_Jan


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