Consumer Price Inflation

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.

*A mild uptick in inflation driven by rising renters’ rent. In February, consumer prices rose 2.0 percent from one year ago, while rents rose 2.7 percent. The volatile energy prices jumped 5.4 percent in a single month.
*Inflation, both the headline and core, is right at near the comfort level of the Federal Reserve. However, rents as measured by the private sector and not government statisticians have been rising at a faster rate and many economists are calling for a near 4 percent gain this year. If such a rising trend pans out then the overall consumer price inflation will tick higher.
*The fuzzy figure of homeowner equivalent rent (a hypothetical figure of what the homeowner would rent out his or her home for) was up 2.1 percent from one year ago. This murky figure is the biggest weight to the overall consumer price index and is expected to rise in the near term just because it should eventually match up with renters’ rent, which has been rising at a faster pace.
*In other components, inflation over the past 12 months are…
–Water-sewer-trash collection fees, up 5.4 percent
–Cable TV service, up 3.4 percent
–Window and floor coverings, down 3.8 percent
–Appliances, down 1.0 percent
–Furniture, no change
–Food prices, up 1.6 percent
–Airfares, up 3.6 percent
–College tuition and fees, up 4.6 percent
*Wages meanwhile were up 2.0 percent in February, just enough increase to keep pace with the rising cost of living.
*If inflation moves higher, above 2.5 percent over several months, then the Fed will be greatly pressured to stop the policy of Quantitative Easing of printing money. Mortgage rates will surely be rising.

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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