Consumer Prices Increase Broadly in May

June 17, 2014

Consumer prices in May experienced the largest monthly increase since February 2013. According to data released by the Bureau of Labor Statistics (BLS), consumer prices increased 0.4% on a seasonally adjusted month-over-month basis. Year-over-year, before seasonal adjustments, prices on expenditures made by urban consumers increased 2.1%. The increase was broad, affecting many items found in the consumer basket such as energy, food, and shelter.

Over the past twelve months, the shelter index increased 2.9% before seasonal adjustments. The shelter index rose 0.3% month-over-month in May after increasing 0.2% month-over-month in April.

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 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). However, given that the price index for overall inflation has been reflecting the recent volatility in energy prices using the core index, which excludes food and energy prices, may provide a more reliable comparison between rents and overall inflation.

The NAHB constructed real rent index increased nominally in May. Over the past year, real rental prices rose by 1.1%.

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With respect to other consumer prices, the food index continued its ascent, rising by 0.5% in May on a seasonally adjusted basis. Over the past twelve months the food index increased by 2.5% before seasonal adjustments. The index for meats, poultry, fish, and eggs, a component of the food index, experienced an increase of 1.4% in May after a 1.5% increase in April.

In May, the energy index increased by 0.9% before seasonal adjustments. The increase was driven largely by a monthly increase of 2.3% in the electricity index. Over the past twelve months the energy index increased by 3.3% before seasonal adjustments. The gasoline index, a component of the energy price index, also increased in May, by 0.7% for the month.

The core CPI rose by 0.3% on a seasonally adjusted month-over-month basis and 2.0% for the year before seasonal adjustments. The Core CPI excludes more volatile food and energy prices.

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Falling Gas Prices Push CPI Down

November 20, 2013

In October, consumer prices decreased 0.1% on a seasonally adjusted month-over-month basis according to data released by the Bureau of Labor Statistics (BLS). Over the past twelve months, prices on expenditures made by urban consumers increased 1.0% before seasonal adjustments.

The month-over-month decrease in the all items index was the result of a 1.7% decrease in the energy price index. The energy price index has been volatile over the last two years, increasing month-over-month in September by 0.8% following a 0.3% month-over-month decrease in August.

The gasoline index experienced the largest month-over-month decrease of all components of the energy price index at 2.9%. The index for natural gas also experienced a drop of 1.0% after increasing 1.8% month-over-month in September.

In October, core CPI, which excludes more volatile food and energy prices, rose by 0.1% month-over-month for the third consecutive month. Over the past twelve months core CPI increased by 1.7%.

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The shelter index rose 0.1% month-over-month in October after increasing 0.2% month-over-month in September.  Over the past twelve months, the shelter index increased 2.3% before seasonal adjustments.

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 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).

The real rent index has increased for nine consecutive months. In October, the real rent index rose by 0.1% month-over-month. Over the past year, real rental prices have risen by 1.1%.

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Because shelter costs represent a large share of the average consumer’s expenditure’s, it is worth exploring the real rent index by region. In October, month-over-month, the real rent index rose by 0.1% in the South and West regions. The month-over-month increase in the Northeast and Midwest regions was 0.2%. Over the past year, real rental prices increased the most in the West by 1.6%.

 


Real Rents Up 1.2% Over Last Year

October 30, 2013

In September, consumer prices rose by 0.2% on a seasonally adjusted month-over-month basis according to data released by the Bureau of Labor Statistics (BLS). Over the past twelve months, prices on expenditures made by urban consumers increased 1.2% before seasonal adjustments.

Data collection for the estimates occurred prior to the government shutdown; however the release of data was delayed by two weeks. Next month’s release has also been pushed back five days, with the original schedule back on track starting in December.

The September release shows a slight increase from last month. In August, the Consumer Price Index – Urban Consumer (CPI) increased by 0.1% month-over-month.

The energy price index accounted for about half of the month-over-month increase for all items. The index increased by 0.8% month-over-month in September after decreasing 0.3% in August. All components of the energy price index rose in September with the index for natural gas experiencing the largest month-over-month increase. The index for natural gas rose 1.8% month-over-month in September after decreasing 2.3% in August and 2.8% decrease in July.

Core CPI, which excludes more volatile food and energy prices, rose by 0.1% month-over-month in September for the second consecutive month. Over the past twelve months Core CPI increased by 1.7%.

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The shelter index rose 0.2% month-over-month in September for the fourth consecutive month.  Over the past twelve months, the shelter index increased 2.4% before seasonal adjustments.

Because shelter costs represent a large share of the average consumer’s expenditure’s, a 0.2% month-over-month increase is worth exploring further. Although the increase in the shelter index partly reflects increases in rental prices, the BLS measure does not isolate the change in rental prices from the changes in the overall price index. NAHB constructs a real rent price index to isolate the change in rental prices. The NAHB constructed 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.

The real rent index has increased for eight consecutive months. In September, the real rent index rose by 0.1%. Over the past year, the real rental prices have risen by 1.2%.

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HUD’s Proposed Fair Market Rents Address a Number of Industry Issues

August 6, 2012

On August 3rd, the Department of Housing and Urban Development (HUD) released its list of proposed  Fair Market Rents (FMRs) for fiscal year 2013.  The primary purpose of FMRs is to establish maximum subsidies for HUD’s Housing Voucher Program (which provides rental assistance to about 1.8 million low-income, elderly and disabled households) although FMRs are sometimes used in other applications when a general measure of local housing costs is needed.  Because housing costs are variable, HUD needs to publish FMRs for each local market area in the country every year.

Maintaining this system while adjusting to new sources of data like the American Community Survey (ACS) has raised a number of issues for the housing industry.  Over the past two years, working as part of an industry coalition, NAHB has addressed these issues in a series of comment letters to HUD.  The letters have included a number of technical recommendations, such as

  • Using a new inflation trend factor (to bring FMRs forward from the last year of data to the year in which they will apply), based on the average rent changes in the ACS over several years.
  • Making some changes to the “recent mover factor” HUD introduced last year (to compensate for rent data that doesn’t distinguish recent movers from other tenants).
  • Maintaining the statutory date of October 1 for final publication of FMRs.
  • Continuing to publish proposed FMRs well in advance of Oct 1 to allow for a period of public comment.

A number of the recommendations were accommodated in the latest release.  For example, the 2013 FMRs used a new trend factor based on the average rent changes in the ACS between 2005 and 2010—something NAHB believes is highly desirable to avoid large, unpredictable and difficult to manage swings in local FMRs.  HUD also made a number of improvements to the recent mover factor.

The effect on 2013 FMRs was an average increase of 5.7% across the 524 metropolitan FMR areas (excluding Guam and Puerto Rico) with actual declines limited to 90 of these metro FMR areas.

Some of the increases largely reversed substantial negative changes noted in comment letters last year.  For example, the 2-bedroom FMR in Flagstaff Arizona increased by 20.2% after declining by 22.6% last year.  The 2-bedroom FMR in Rochester Minnesota increased by 16.1% after declining by 16.7% last year.

Nevertheless, in the absence of a hard floor, any method for determining FMRs across the entire nation will produce significant declines in some areas.  The metro areas where 2013 FMRs declined by more than 5% are shown below:

Because HUD has continued to provide a proposed list well in advance of the Oct 1 publication date with a period for public input, stakeholders can comment on the above or other of the FMRs proposed for 2013.  The deadline is September 4, and instructions for submitting comments can be found on the first page of the preamble published in the Federal Register.  HUD also has an online documentation system that shows in detail how the FMR for any particular area is calculated.


Sharp Decline in Energy Prices Pushes CPI Lower

June 14, 2012

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 11th 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

May 15, 2012

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 9th.

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 10th 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.


CPI Rises as Core Index and Energy Prices Climb Higher; Real Rents Inch Lower to kick off 2012

February 17, 2012

The Bureau of Labor Statistics (BLS) reported the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% on a month-to-month basis during January 2012. Price levels rose across a fairly broad base of categories, as the core, energy and food indexes all registered increases compared to December. If not for the fact that natural gas prices continue to slump due to the abundant supplies created by shale production and above-average winter temperatures, energy prices would be contributing even more to growth in topline CPI as gasoline and crude oil prices have increased strongly in recent weeks.

Core CPI (which excludes energy and food prices) increased 0.2% last month, fueled mostly by large increases in apparel and medical equipment prices. Although core CPI has increased in each of the last 24 months, the overall rate of growth in non-food and non-energy consumer goods has been fairly tame. Indeed, on a year-over-year basis core CPI increased 2.3% in January and has increased at just 1.5% on an average annual basis since January 2009.

The CPI’s measure of housing costs, the shelter index, expanded 0.2% in January, roughly the same rate of month-to-month growth it has registered in each of the last 8 months. On a year-over-year basis, the shelter index increased 2%. With the recent tightening observed in the apartment rental market, rental rates have also been on the rise. NAHB’s measure of real rental rates, which is constructed from the CPI for rent of primary residences and overall CPI, did decline on a monthly basis for the first time since last summer; however, since hitting a cyclical low in mid-2011, the measure for real rents has climbed 2% on an annualized basis and could continue to rise further as apartment demand is expected to strengthen over the course of 2012 thanks to an improving job market.