The real rent index was flat in December, after slight growth in October (+0.1%) and November (+0.2%) (Figure 1). The December reading means that rent inflation and the “core” Consumer Price Index (CPI) moved at the same pace, both increasing by about 0.1%. The annual growth rate of the real rent index was 0.2% in December.
NAHB constructs a “real” rent index 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).
In 2020, the monthly change in the real rent index peaked in April (+0.6%). It fell sharply during the summer months, particularly in July (-0.4%) and August (-0.3%), with core CPI growth outpacing rent inflation. Both rent inflation and core CPI were weak towards the end of the year, resulting in little or no change in the real rent index. Inflationary pressures have been weak as the economy continues to deal with the impact of the coronavirus pandemic.