Rental Price Growth Continues to Exceed Overall Inflation

The Bureau of Labor Statistics reported that its measure of consumer prices declined in April. According to the Consumer Price Index – Urban Consumer (CPI), prices faced by consumers declined by 0.4% on a month-over-month seasonally adjusted basis. This is the second consecutive monthly decline for the index. In March, consumer prices fell by 0.2%. Consumer prices have experienced three episodes of month-over-month declines in the past 6 months and 5 instances of monthly declines over the past twelve months. Over the past year, consumer prices have risen by 1.1% on a not seasonally adjusted basis.

As Chart 1 illustrates, the decline in consumer prices largely reflects falling energy prices. In April, energy prices declined by 4.3% on a month-over-month seasonally adjusted basis after falling by 2.6% in March. Gasoline prices were largely responsible for the decline in energy prices, falling by 8.1% in April. Over the past twelve months energy prices have declined by 4.3%. Meanwhile, food prices, which also display higher than average volatility, rose by 0.2% in April after remaining flat in March. Core CPI, which excludes both food and energy prices, rose by 0.1% in April, mimicking its growth rate in March. Over the past twelve months, core prices have risen by 1.7% on a not seasonally adjusted basis.

NAHB constructs a real rental price index by deflating the price index for rent by the index for overall inflation. This measure indicates whether inflation in rents is faster or slower than general inflation, excluding more volatile food and energy prices, and provides some insight into the supply and demand conditions for rental housing. When rents are rising faster (slower) than general inflation the real rent index rises (declines). Alternatively, the real rental price index also conveys information about the importance of the rental prices faced by consumers relative to their other expenditures and sheds some light on the relative importance of household expenditure items. In this way, an increase (decrease) in the real rent index also indicates that rental prices are a growing (shrinking) share of the overall expenditures made by consumers.

Computationally, the real rental price index and the relative weight calculation are closely related. As Chart 2 illustrates, the real rental price index and the relative weight of rental prices within core CPI follow a very similar trend. The relative weight measure is first calculated using not seasonally adjusted data and overall CPI in order to ensure proper measurement. Then core CPI is substituted for overall CPI and finally the not seasonally adjusted data is converted to its seasonally adjusted counterpart. In April, rental price inflation, 0.2%, exceeded core inflation, 0.1%. As a result, real rental prices faced by consumers increased. This is the third consecutive month that real rental prices have increased. Similarly, seasonally adjusted rental prices as a share of consumers’ overall expenditures also rose for the third consecutive month.

Consumer Prices Fall on Lower Gas Prices

The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index – Urban Consumer (CPI-U) fell by 0.2% on a seasonally adjusted monthly basis in March. The last month-over-month decline in the CPI-U occurred in November 2012, when prices also fell by 0.2%. According to this month’s release, the monthly decline in the CPI-U largely reflected a decrease in energy prices, gasoline in particular. Following a 5.4% increase in February, the Energy Index fell by 2.6% in March. Gasoline prices, which rose by 9.1% in February, fell by 4.4%. Meanwhile, food prices were unchanged after rising by 0.1% in February. Core CPI-U, which excludes more volatile energy and food prices, grew by 0.1% in March. Over the past twelve months, CPI-U has increased by 1.5% while core CPI-U has grown by 1.9%.

NAHB constructs a real rent price index by deflating the price index for rent by the index measuring core inflation. This measure indicates whether inflation in rents is faster or slower than general inflation and provides some insight into the supply and demand conditions for rental housing, after controlling for overall inflation. When rents are rising faster (or slower) than general inflation the real rent index rises (declines). In March, real rental prices rose by 0.1%. Nominal rental prices rose by 0.2% while core inflation was 0.1%. As Chart 2 illustrates, real rental prices, which have been steadily increasing since June 2012, have surpassed the level established in May 2009.

CPI Up on Gasoline, Real Rental Prices Also Rise

After two months of no change, the Consumer Price Index for Urban Consumers (CPI-U) rose by 0.7% in February. According to the release, energy prices accounted for much of the increase in the CPI-U. In February, energy prices rose by 5.4%, reversing three consecutive month-over-month declines. Gasoline prices rose by 9.1% while fuel oil, which is a component of housing energy, rose by 3.1%. Meanwhile, food prices grew by 0.1%. Core inflation, which excludes more volatile energy and food prices, grew by 0.2% in February. Over the past twelve months both headline and core inflation have risen by 2.0%.

NAHB constructs a real price index by deflating the price index for rent by the index for overall inflation. This measure indicates whether inflation in rents is faster or slower than general inflation and provides some insight into the supply and demand conditions for rental housing, after controlling for overall inflation. When rents are rising faster (slower) than general inflation the real rent index rises (declines). Previous research suggests that the core inflation index may provide a more reliable comparison between rents and overall inflation since the price index for overall inflation has been reflecting volatility in energy prices.

Chart 2 illustrates how the US average of real rental prices has performed since January 2000. According to this chart, real rental prices rose by 16.0% between January 2000 and January 2009. After peaking in January 2009, real rental prices steadily declined between January 2009 and August 2010. However, they remained 14.6% above their January 2000 level after this period. The real rent index restarted a sustained ascent in July 2011, following ten months in which it was relatively flat. In February 2013, the real rent index returned to the level last seen in January 2009.

Consumer Prices Decline On Falling Energy Costs; Gas Prices Fall but Household Energy Increases

The Bureau of Labor Statistics (BLS) has reported that its Consumer Price Index for Urban Consumers, CPI-U, declined on a monthly seasonally adjusted basis of 0.3% in the month of November. This is the first decline for the headline index since May 2012. The decline in the CPI-U largely reflects a steep fall in energy prices, which fell by 4.1% on a seasonally adjusted basis in November. The chart below shows CPI-U has been driven by swings in energy prices for the last several years. Over the past twelve months, the Energy Index has grown by only 0.3% on an unadjusted basis restrained by monthly price declines in 6 of the past 8 months.

The decline in energy prices was partly offset by an increase in food prices and in core CPI-U. Food prices grew by 0.2% in November matching its October growth rate. Meanwhile, core CPI-U, which excludes volatile energy prices and food prices, rose by 0.1% in November. Since November 2011, food prices have risen by 1.8% on an unadjusted basis while core CPI-U has increased by 1.9%.

The Energy Index, a special aggregate index calculated by combining Motor Fuels and Household Energy, represents 10.2% of CPI-U. Motor fuels, which is largely gasoline prices, accounts for 6.1% of overall CPI-U. Household energy costs, which include fuel oil, electricity, and utility gas, account for the remaining 4.1%. As a result, the Motor Fuels subcategory is the larger component of the Energy Index. Motor fuels accounts for 59.8% of the Energy Index while Household Energy represents 40.2%.

If included as a separate category, energy costs would be the fourth largest component of CPI-U. According to the October 2012 weights, which determine the overall percent change based on the subcomponents, the Energy Index ranks behind Housing excluding its energy component, Food and Beverages, and Transportation excluding gasoline and other motor fuels. In the computation of CPI-U, the Energy Index has a heavier weighting in the overall price level than Medical Care, Education and Communication, Recreation, Apparel, and Other Goods and Services. Since the weights shown in Chart 2 reflect estimates of current spending patterns then a weighting of 10.2% indicates that just over $.10 of every dollar in costs faced by urban consumers went toward energy.

Chart 3 shows that motor fuel prices also tend to be more volatile than the cost of household energy. Between February 2009 and November 2012, the monthly change in gasoline and other motor fuels ranged between an increase of 5.9% and a decrease of 7.3% while household energy prices ranged from a 0.2% increase to a 0.8% increase over the same period. In the most recent month, November, household energy prices rose by 0.8% while transportation-related energy prices fell by 7.3%. As a result, energy prices fell by 4.1%. Since the relative weights of motor fuels and household energy are roughly similar, then the heightened volatility in motor fuel prices relative to household energy costs accounts for the changes reported in overall energy prices.

CPI Rises on Surging Gasoline Prices

The Bureau of Labor Statistics reported the Consumer Price Index for All Urban Consumers (CPI-U) jumped 0.6 percent on a month-to-month basis in August 2012. This ended a four-month streak in which the CPI-U was either unchanged or declined, plus it also marked the largest percentage change in overall consumer price levels since mid-2009. Energy prices accounted for the bulk of last month’s increase in CPI as the energy index surged 5.6 percent from July 2012. The index for gasoline climbed 9 percent on a month-to-month basis, with the EIA indicating that the national average retail price of all grades rose from $3.50 to $3.78 per gallon. Energy prices could bolster the reading for the September CPI report as gasoline and diesel fuel prices continued to increase during the first half of this month.

Core CPI, a measure that excludes volatile food and energy prices, increased approximately 0.1 percent compared to July 2012. Despite seeing sequential gains in the past 31 months, core CPI still points to a very tame rate of inflation in non-food and non-energy goods prices. Indeed, year-over-year rate of growth during August 2012 was 1.9 percent, representing the slowest rate of core CPI growth since mid-2011.

The shelter index, which serves as an approximation for housing costs, increased for the 28th month in a row; however, just as in all the previous months, these gains have been modest at best and the shelter index has increased 2.1 percent on a year-over-year basis. In terms of rental housing costs, NAHB constructs a real rent index using the CPI for rent of primary residences and the topline CPI. According to this measure, real rents declined 0.4 percent in August 2012, representing the largest decline in more than a year. Last month’s decline in the real rent index is a direct result of surging energy prices causing overall CPI to increase at a much faster rate than rents, which have risen at a fairly modest pace for quite some time.

CPI Mostly Unchanged for Second Month in a Row

The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) held steady in July. Overall, the CPI-U has remained either unchanged or declined in each of the last four months. Energy prices slipped 0.3% in July, putting more downward pressure on topline CPI.  The next couple of months of readings on overall CPI will likely be stronger, however, as gasoline and natural gas prices have surged in recent weeks.

Core CPI, a measure that excludes volatile food and energy prices from the calculation, posted its smallest month-to-month increase since September 2011. Year-over-year growth in core CPI still points to a very tame rate of increase in non-food and non-energy price levels, with the latest reading of 2.1% the third consecutive month this metric has decelerated versus to its year-ago level.

The shelter index, which serves as a crude measure of overall housing costs, rose for the 28^th consecutive month; however, each of those increases have been modest (including the 0.1% gain in June), leaving the shelter index only 2.1% above its year-ago level. In order to more closely assess trends in rental housing costs, NAHB constructs a real rent index from the CPI for rent of primary residences and overall CPI. This metric has registered four consecutive month-to-month increases, with the latest gain coming in at 3.3% on an annualized basis.

CPI Holds Steady in June

For the second time in three months, the Consumer Price Index for All Urban Consumers (CPI-U) remained unchanged from the prior month’s reading. Once again, energy prices weighed on topline CPI as the energy index fell for the third month in a row, contracting 1.4% from May 2012 and 3.9% versus June 2011. Gasoline prices fell throughout the month of June, closing out the final week of the month around a national average of $3.42 across all grades. The index for natural gas offset the drop in gasoline by posting a 1.7% increase in June. The downward pressure on the overall price level caused by gasoline prices will likely slow or even possibly come to an end over the near term, as prices at the pump and wellhead have risen appreciably over the past several weeks.

Core CPI, a measure that excludes volatile food and energy prices, increased 0.2 percent month-to-month in June. This marks the fourth consecutive month the core CPI has advanced at this rate and the index has increased at an average monthly rate of approximately 0.2% since the beginning of 2011. On a year-over-year basis, core CPI registered a 2.2% rate of growth, slowing slightly from the 2.3% rate observed the previous four months, but still above the 1.9% average annualized rate of increase seen over past decade.

The shelter index, which is used as a measure of housing costs, continued to rise steadily in June as it increased 0.1% from the previous month and 2.2% on a year-over-year basis. In terms of rental housing, NAHB constructs an inflation-adjusted measure of rental rates from the CPI for rent of primary residences and overall CPI. The real rent index increased for the third month in a row and is approximately 1% above its June 2011 level.

Sharp Decline in Energy Prices Pushes CPI Lower

Today’s release for the Consumer Price Index for All Urban Consumers (CPI-U) showed a 0.3% decline between April and May 2012. The energy index accounted for most of the drag on topline CPI last month, falling an additional 4.3% after a 1.7% drop in April. The latest decline represented the largest percentage contraction in the energy index since December 2008—a time period in which energy prices were falling sharply in response to the deepening recession. Gasoline prices contributed significantly to the decline in the broader energy index, averaging $3.79 over the course of May, a 4.2% decline from April. Prices fell throughout the month of May and have trended lower through the first two weeks in June ($3.63 nationally as of 6/11), which points to additional downward pressure on the energy index and overall CPI.

Core CPI, which excludes the often-volatile food and energy goods, increased 0.2 percent month-to-month in May, roughly the same rate of growth it has averaged since the beginning of 2011. On a year-over-year basis, core CPI advanced 2.3% for the fourth time in the last five months. The shelter index, which serves as a proxy measure of overall housing costs, maintained its slow and steady march higher by increasing 0.2% on a month-to-month basis for the 11^th time in 12 months. For rental housing, NAHB separately constructs a measure of real rental rates from the CPI for rent of primary residences and overall CPI. On an annualized basis, the real rent index jumped 6 percent in May, based on a trend-like increase in rents coupled with the sharp (annualized) decline in overall inflation. In addition, this marked the largest percentage jump in this metric since late 2008.

Falling Energy Prices Weigh on CPI

The Bureau of Labor Statistics reported today that the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged between March and April 2012. Energy prices played a major role once again in shaping the CPI’s trajectory, but this month it put downward pressure on the overall CPI as the CPI for energy slumped 1.7 percent versus March. Gasoline accounted for the bulk of the decline in the broader energy CPI, even though retail gasoline prices actually peaked nationally at nearly $4.00 per gallon during the week of April 9^th.

Prices eventually declined 11 cents in the final three weeks of the month, which could have influenced this downward movement in the energy index. With retail gasoline prices falling appreciably in most parts of the U.S. over recent weeks, gasoline could weigh on the overall CPI for May. Natural gas prices continued to pull the energy component of CPI lower. Indeed, the spot price for natural gas averaged $1.95 per MMBTU during April—the lowest level observed since March 2009.

Core CPI, which excludes food and energy goods, increased 0.2 percent on a month-to-month basis in April and rose 2.3 percent versus April 2011. Year-over-year increases in core CPI have generally inched higher over the past 19 months, but at 2.3 percent the rate of growth in core CPI remains quite tame. Housing costs, as measured by the shelter index, continued their gradual march higher by climbing 0.2 percent for the 10^th time in the past 11 months and increased a modest 2.2 percent compared to April 2011. With prices for single-family housing beginning to stabilize, rental costs have become a point of focus as households make the decision between owning or renting and as available apartments have become scarcer in recent quarters. NAHB’s measure of real rental rates is constructed from the CPI for rent of primary residences and overall CPI. This index increased 2.1 percent on an annualized basis in April and registered its first year-over-year increase since October 2009. Relatively stronger increases in energy prices had masked the impact of rising rental rates in recent months.

Energy Prices Continue to Push CPI Higher

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% on a month-to-month basis during March 2012. Once again, energy prices boosted the topline reading on the month-to-month change in price levels, as the CPI for energy jumped 0.9%, after registering a 3.2% increase in February. Retail gasoline prices averaged $3.91 nationally (across all formulations) in March, surging 7.4% versus the previous month. In addition, this marks the third highest monthly reading (in current dollars) for gasoline on record. Prices at the pump have risen an additional 9 cents over the first two weeks of April and the U.S. Energy Information Administration anticipates prices rising further ahead of the Memorial Day holiday. While gasoline prices have exerted some upward pull on overall CPI, natural gas prices have offset this impact to some degree. In fact, the spot price for natural gas recently fell to its lowest point since October 2001 as inventories are seasonally abundant and demand remains weak.

Meanwhile, core CPI, which excludes food and energy goods, increased 0.2% from last month and gained 2.3% on a year-over-year basis. The largest gains were observed for used cars and apparel, but all major categories that make up core CPI experienced increases between February and March. The shelter index, which serves as the broadest measure of housing costs within the CPI, posted a 0.2% increase during March—the same rate of growth that occurred in the 5 prior months. On a year-over-year basis, the shelter index increased 2.1%. With the multifamily sector performing relatively well  compared to the single-family side of the market, rental rates will likely become an important issue as households make the calculus between owning and renting. NAHB’s measure of real rental rates, which is constructed from the CPI for rent of primary residences and overall CPI, fell for the third month in a row during March. While this result suggests apartment demand might be weakening, the recent slippage in the real rent index is likely a result of surging energy prices pushing overall CPI up faster rate than rents.