Consumer Price Inflation in January and Beyond

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses consumer price inflation.

  • The government reported no inflation in January. The consumer price index was unchanged in the past month and was also essentially unchanged for the past 4 months. From 12 months ago, CPI was up a tame 1.6 percent.
  • One important component of inflation, however, continues to be a menace on the higher side. Apartment rents were 2.7 percent higher from one year ago, and the murky owner-equivalent rents were up by 2.1 percent. The latter is a hypothetical figure of a rent that a homeowner would charge to rent out their home. Over time, the owner-equivalent rent should rise comparably with the apartment rent, which means owner-equivalent rent could be rising in the months ahead. Furthermore, apartment rent as measured by private organizations like REIS is showing a faster growth than as measured by the government statisticians. Rent is the biggest weight to the overall consumer price index.
  • Regarding other components, food prices rose by 1.6 percent from one year ago. Energy prices were 1.0 percent lower.
  • Regarding expenditures related to home operation, windows and flooring costs fell by 3.1 percent. Furniture prices were lower by 1.0 percent. Appliance prices were up less than 1.0 percent. Prices on Do-it-Yourself items like tools, hardware, and outdoor equipment were essentially unchanged.
  • New car prices were higher by 2.0 percent, while used car prices fell by 2.0 percent, reflecting a shift to more new car purchases and away from used cars. For those interested in bargains, they should note that car prices are much more volatile in the used car segment.
  • Based on February rises in energy prices, the upcoming CPI will show an upward trend. The rising rent for renters and homeowners will further put upward pressure on prices. Higher inflation will mean higher mortgage rates. Overall, the headline inflation will be manageable at around 2.0 to 2.5 percent in 2013. But a higher figure exceeding 3.0 percent should be expected in 2014 and 2015 because of the ultra-loose monetary policy of the Federal Reserve.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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    Leon Moody Sr.,
    Universal Son Enterprises
    Real Estate Entrepreneurs/Investors