Inflation Accelerates for Second Straight Month

2023-09-13T13:17:49-05:00

Consumer prices in August saw the largest monthly gain since June 2022, primarily driven by a surge in gasoline costs. Core service inflation excluding housing was little changed in August, suggesting that the path toward disinflation ahead still has some fluctuations. Meanwhile, shelter costs continued to remain at a high level and was the second-largest contributor to the increase in inflation. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline further later in 2023, supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.6% in August on a seasonally adjusted basis, following an increase of 0.2% in July. The price index for a broad set of energy sources rose by 5.6% in August as all the major energy component indexes increased.  Excluding the volatile food and energy components, the “core” CPI rose by 0.3% in August, following an increase of 0.2% in July. Meanwhile, the food index increased by 0.2% in August with the food at home index rising 0.2%. In August, the indexes for gasoline (+10.6%) and shelter (+0.3%) were the largest contributors to the increase in the headline CPI. Meanwhile, the indexes for lodging away from home (-3.0%), used car and trucks (-1.2%) as well as recreation (-0.2%) declined in August. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.3% in August, following an increase of 0.4% in July. The indexes for owners’ equivalent rent (OER) increased by 0.4% and rent of primary residence (RPR) increased by 0.5% over the month. Monthly increases in OER have averaged 0.5% over the last eight months. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.7% in August, following a 3.2% increase in July. The “core” CPI increased by 4.3% over the past twelve months, following a 4.7% increase in July. This was the slowest annual gain since October 2021. The food index rose by 4.3% while the energy index fell by 3.6% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.2% in August. Related ‹ Mortgage Activity Low as Rates Remain Above Seven PercentTags: cpi, fed, inflation, shelter

Inflation Accelerates for Second Straight Month2023-09-13T13:17:49-05:00

Housing Costs Persist as Key Driver of Inflation

2023-08-10T09:15:26-05:00

Consumer prices showed a slight uptick in July, with core inflation remained sticky, ending a streak of 12 consecutive months of steady declines. Despite a slowdown compared to the previous month, the shelter index (housing inflation) continued to be the largest contributor to both headline and core inflation, accounting for over 90% of the increase in headline inflation. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline further later in 2023, supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.2% in July on a seasonally adjusted basis, the same increase as in June. The price index for a broad set of energy sources rose by 0.1% in July as the increase in gasoline index (+0.2%), natural gas index (+2.0%) and fuel oil index (+3.0%) more than offset the declines in electricity index (-0.7%).  Excluding the volatile food and energy components, the “core” CPI rose by 0.2% in July, the same increase as in June. Meanwhile, the food index increased by 0.2% in July with the food at home index rising 0.3%. In July, the indexes for shelter (+0.4%) and motor vehicle insurance (2.0%) were the largest contributors to the increase in the headline CPI. Meanwhile, the indexes for airline fares (-8.1%), used car and trucks (-1.3%) as well as communication (-0.1%) declined in July. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.4% in July, same increase in June. The indexes for owners’ equivalent rent (OER) increased by 0.5% and rent of primary residence (RPR) increased by 0.4% over the month. Monthly increases in OER have averaged 0.6% over the last seven months. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.2% in July, following a 3.0% increase in June. The “core” CPI increased by 4.7% over the past twelve months, following a 4.8% increase in June. This was the slowest annual gain since October 2021. The food index rose by 4.9% while the energy index fell by 12.5% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.3% in July. Related ‹ Mortgage Activity Decreases for Third Straight WeekRising Mortgage Rates and Home Prices Put a Damper on Housing Affordability ›Tags: cpi, inflation, shelter

Housing Costs Persist as Key Driver of Inflation2023-08-10T09:15:26-05:00

CPI Eases Further as Housing Inflation Slows

2023-07-12T09:16:44-05:00

Consumer prices in June saw a continued deceleration, with the smallest year-over-year gain since March 2021. Over the past twelve months, inflation has been consistently decelerating. Despite a slowdown compared to the previous month, the shelter index (housing inflation) continued to be the largest contributor to both headline and core inflation, accounting for over 70% of the increase in headline inflation. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline further later in 2023, supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.2% in June on a seasonally adjusted basis, following an increase of 0.1% in May. The price index for a broad set of energy sources rose by 0.6% in June as the increase in gasoline index (+1.0%) and electricity index (+0.9%) more than offset the declines in natural gas index (-1.7%) and fuel oil index (-0.4%).  Excluding the volatile food and energy components, the “core” CPI rose by 0.2% in June, following an increase of 0.4% over the past three months. Meanwhile, the food index increased by 0.1% in June with the food at home index remained unchanged. In June, the indexes for shelter (+0.4%), motor vehicle insurance (1.7%) and apparel (0.3%) were the largest contributors to the increase in the headline CPI. Meanwhile, the indexes for airline fares (-8.1%), communication (-0.5%) as well as household furnishings and operations (-0.1%) declined in June. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.4% in June, following an increase of 0.6% in May. The indexes for owners’ equivalent rent (OER) increased by 0.4% and rent of primary residence (RPR) increased by 0.5% over the month. Monthly increases in OER have averaged 0.6% over the last six months. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.0% in June, following a 4.0% increase in May. This was the slowest annual gain since March 2021. The “core” CPI increased by 4.8% over the past twelve months, following a 5.3% increase in May. The food index rose by 5.7% while the energy index fell by 16.7% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.3% in June. Related ‹ Consumer Credit Growth Slows to 30-Month LowTags: BLS, cpi, inflation, shelter index

CPI Eases Further as Housing Inflation Slows2023-07-12T09:16:44-05:00
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