Consumer Price Index for the real estate market | Bedford Hills NY Real Estate

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 and inflation.

• Today’s data on inflation showed decelerating pressure on consumer prices.  The Consumer Price Index (CPI) was unchanged in June from one month ago, and is now higher by 1.7 percent from one year ago.
• Food prices were up 2.7 percent from one year ago, but the rain shortage in the Midwest will raise prices going forward.  Gasoline prices fell 4.3 percent, but expect no further relief based on the recent rise in Brent crude oil prices back up to $100 per barrel.  Oil prices in June were lower, but rising so far in July.  Producer prices have shown a declining trend so perhaps the overall CPI could fall further in immediate upcoming months.
• Something appears amiss related to rent data.  Rents are up 2.7 percent, but were decelerating in the latest month with only a 0.1 percent monthly gain, compared to consistent 0.2 to 0.3 percent monthly gains in the prior 12 months.  Based on other data, rents have been showing an accelerating, and not decelerating, trend.  Therefore, there could be stronger ‘catch-up’ increases in the upcoming months.
• Home prices are not part of CPI because it is considered as an asset.  Similarly, any rise and fall in stock prices or gold prices is not included.  But something called imputed rent is included, which in theory is how much a homeowner would charge in rent to a tenant of their home but in practice is fairly hard to measure.  It is computed largely by basing rates off the general rent trend.
• Water and trash bills continue to outpace the overall CPI, with the latest showing a 5.5 percent gain.  This cost has been rising at 5 percent or higher for nine straight years.  But on a positive note, the gas bill for utilities has fallen sharply by 14 percent.
• Of interest to some commercial real estate investors, moving/freight/storage costs rose 3.8 percent.  It is the highest rate of inflation in 6 years after several years of falling prices on this component.
• Bad news for parents: college tuition and fees continue to grow fast, rising 5.3 percent.  This bill has outpaced CPI for 30 consecutive years.  Why: Strong demand for higher education and/or high salaries for professors and college administrators?
• The biggest reason to monitor this data aside from assessing how your pocketbook is impacted is that inflation data impacts monetary policy and interest rates.  Based on today’s softening inflation in the broad CPI, the Federal Reserve will not raise its short term interest rate anytime soon.  The long-term rates like 30-year fixed rates could also continue to remain at rock bottom rates.  Still, core inflation is up 2.2 percent, above the Fed’s preferred target of 2.0 percent.  The core rate could rise even higher once rent data begins to accelerate again.  Even though the Fed has pronounced its desire to keep low rates well into 2014, the Fed may have to start raising rates from as early as fourth quarter 2013 if rent continues to move higher.