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Consumer Inflation: Latest Data and Outlook

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 the consumer price index.

  • No inflation to speak of in May, with the Consumer Price Index (CPI) rising by only 0.1 percent from last month. CPI is now higher by 1.4 percent from a year ago.
  • But renters’ rent continues to strengthen with a 2.8 percent gain from one year ago.  Separate private sector data on rents has pointed to even faster increases of late, which may hint that government rent data will further rise in upcoming months. The fuzzy figure on “owners’ equivalent rent”, which tries to gauge what the homeowners would pay to rent out their homes, rose by 2.1 percent. Given falling apartment vacancy rates and a shortage of homes, rents will likely rise further over the next 12 months.
  • Home prices are not part of CPI. It is considered an asset, like stock prices, and is not part of consumer price inflation. (Tell that to all the homebuyers now in the market).
  • 2013 inflation will be tame – maybe 2 percent at most by December. So next year’s cost of living adjustment on social security checks and the like will be about 2 percent. However, rising rents and owner equivalent rent means CPI inflation will kick higher in 2014. If active money printing continues, then 5 percent inflation is a distinct possibility by 2015. Those with COLA will be protected, but those without such clauses will fall behind in standard of living.
  • One guaranteed way to partly protect against inflation is to lock in those 30 year fixed rate mortgage payments. It is because of this that we’re amazed when hearing about the monthly mortgage payments of our grandparents.
  • Interesting that the mention of a currency, be it the British Pound, French Franc, or the Russian Ruble, in the great literature of the 19th century retained its value throughout the story-line even over several generations. Even the mention of giving 75 Drachmas (Greek currency) by Julius Caesar to Roman citizens greatly awed the public. This is not true anymore. All currencies seem to measurably lose purchasing power over a short time. Today, Drachmas would be essentially worthless should Greece get out of the Euro.

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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