High energy prices and “sticky” housing costs drove consumer prices higher in December, according to the latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics. Despite the increases, overall inflation remained low at 3.4%, lower than 6.5% in 2022. The NAHB says shelter costs continue to put upward pressure on inflation, accounting for over two-thirds of the total increase in all items excluding food and energy.
In December, the index for shelter (+0.5%) was the largest contributor to the monthly increase in the core CPI. Among other top contributors that rose in December include indexes for medical care (+0.6%) and motor vehicle insurance (+1.5%). Meanwhile, the top contributors that experienced a decline in December include indexes for household furnishings and operations (-0.4%), and personal care (-0.3%).
The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.5% rise in December, following an increase of 0.4% in November. 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 0.5% over the past year. 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 3.4% in December, following a 3.1% increase in November. The “core” CPI increased by 3.9% over the past twelve months, after rising 4.0% in November. This was the slowest annual gain since May 2021. Over the past twelve months, the food index rose by 2.7% while the energy index fell by 2.0%.
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 than overall inflation, the real rent index rises and vice versa. 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 0.1% in December.
