Once again energy prices, notably gasoline (prices at the pump), are driving headline inflation. The Consumer Price Index (CPI) rose at a seasonally adjusted annual rate of 5.0% in April influenced heavily by a 153.5% annualized increase in the price of gasoline. Increases in separate indexes for food and core CPI (excluding food and energy) were in line with recent trends, 2.2% and 2.4%, respectively. The price index for a broader set of energy sources rose at annual rate of 50.2%.

Energy prices have had an outsized impact on headline inflation in recent years, on the downside in late 2014 as oil prices collapsed, as well as on the upside with spikes in mid-2012 and early 2013. The future of the energy sector and its impact on headline inflation is highly uncertain in the near-term but the trend in core inflation is more stable and a better indicator of broad based inflation trends.

A “real” rent index is constructed to indicate whether 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 April, real rent inflation rose at a seasonally adjusted annual rate of 1.8%, down from 2.7% in March.

Tags: core cpi, core inflation, cpi, energy prices, inflation, multifamily