Latest Consumer Price Inflation

  • It has become easier to breathe with consumer prices falling by the most amounts in six years.  Lower gasoline prices are everywhere. But wait, renters are getting squeezed hard with fast rising rents.
  • Specifically, the overall Consumer Price Index (CPI) fell 0.3 percent in November from the month prior. This largest monthly decline in a long time has pushed down the annual inflation rate to only 1.3 percent.  With the Cost-of-Living-Adjustment on government issued checks, like social payments, set to rise by 1.7 percent in 2015, some people will experience a modestly improved living standard.
  • Apartment rents increased at the highest pace since November 2008, rising 3.5 percent from one year before.  Homeowner equivalency rents – a hypothetical figure of what the homeowners would pay in rent if they were renting out their home – increased by 2.7 percent.
  • Very good that the overall CPI is decelerating.  Not only is it good for consumers, but it also implies that the Federal Reserve can be patient and delay raising interest rates.  The Fed considers the ideal inflation rate to be at or near 2 percent.  Given low inflation, the Fed can keep its short-term fed funds rate at zero at least through the spring of next year.
  • Gasoline prices as everyone knows have been tumbling.  A typical American family spends $3,000 a year at the pump.  It will be $2,000 if gasoline prices stay at this level, a cool $1000 savings.  The cause is an oil production boom in North Dakota. This one small U.S. state looks to flip at least one bad acting oil-dependent country – Russia, Venezuela, or Iran.
  • With low gasoline prices, there could be record driving miles over this holiday break, including possibly extending vacations to go to new places.  Be aware, however, of more domestic arguments.  Possibilities of more new activities mean more decisions need to be made.  Not all will agree with that decision. That is why there are more domestic arguments during vacations than on normal days where fewer decisions are made.  CPI-UCPI-U, RentFederal FundsUnleaded Gas Price

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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