Eye On Housing
The Bureau of Labor Statistics (BLS) reported that consumer inflation rose by 0.2 percent in May, similar to its growth rate in April. Both food and energy prices decelerated over the month, but the slowdown in these items was offset by an acceleration in core CPI to 0.2 percent, from 0.1 percent in April. Over the year, headline inflation climbed to 2.8 percent and core inflation reached 2.2 percent.
Rental prices, a key component of core CPI slowed over the year, continuing a modest trend established in 2017. However, in real terms, adjusting for inflation overall, rental price growth has decelerated noticeably since reaching a recent peak in August 2017. The faster slowdown in real rental price growth largely reflects the acceleration in annual inflation.
Annual inflation has been accelerating in recent months as monthly growth rates in 2018 exceed those in 2017. However, recent monthly growth rates, particularly in core inflation have remained generally stable since February. If this trend continues, the above two percent inflation, following sub-two percent readings in 2017, could moderate somewhat in 2019.
According to the CPI, rental prices continue to grow. However, there has been a modest deceleration in rental price growth since 2017. In real terms, after adjusting for the fact that consumer prices more generally are rising, rental price growth has recorded a steeper slowdown since 2017, largely reflecting the acceleration in consumer price growth. The pace of real rental price growth has returned to its September 2016 rate.
The BLS reported that its CPI rose by 0.2 percent over the month of May, similar to its monthly growth rate in April. Over the year, measured on an unadjusted basis, the CPI rose by 2.8 percent faster than its 12-month growth rate in April, 2.5 percent. On a 12-month basis, CPI has been accelerating since the beginning of the year.
Mechanically, the 12-month growth rate would accelerate from the previous month if the monthly growth rate in the current month exceeds the monthly growth rate from 12 months ago. The figure above indicates that the recent acceleration in 12-month inflation reflects strong month-over-month growth in first five months of 2018 relative to its respective month in 2017. However, particularly since February 2018, monthly growth rates from 12 months ago (the light blue bars) have been low when compared to 12-month ago growth rates going back through 2016. Meanwhile, the current monthly growth rates (the dark blue bars) have not shown a marked acceleration in recent months.
Energy price growth slowed over the month from 1.4 percent to 0.9 percent as did for prices, which were unchanged over the month of May after rising 0.3 percent in April. The slowdown in energy and food price growth was offset by an acceleration in “core” CPI, which excludes these two items. Core CPI rose by 0.2 percent May after climbing 0.1 percent in April. Over the last 12-months core CPI grew 2.2 percent in May after rising 2.1 percent in April.
Core CPI has been accelerating since November 2017 as, mechanically, monthly growth rates in the current month exceed those from 12 months ago. However, after accelerating in each of November, December, and January, the current month’s monthly change in core CPI (the dark blue bars) has been generally stable, excluding April, at a lower monthly growth rate in subsequent months.
Consumer inflation, measured both by headline- and core CPI is accelerating on a 12-month basis as current month monthly growth exceeds growth in the same month last year. However, in 2018, the monthly growth rates in consumer inflation do not seem to be accelerating. If this trend continues, then 12-month changes in consumer inflation may moderate in 2019. This follows a 2018 to-date in which consumer inflation has accelerated to rates exceeding 2.0 percent, following a 2017 in which inflation was typically below that threshold. If inflation does stabilize, then changes in real rental prices will largely reflect trends in rental prices instead of overall consumer inflation.
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