While consumer prices eased for the third straight month in September, inflation remains above an 8% year-over-year rate for the seventh consecutive month. According to the NAHB, despite the likelihood that both core Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) measures of inflation have peaked, the Federal Reserve is expected to remain aggressive with respect to tightening monetary policy.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.4% in September on a seasonally adjusted basis, following an increase of 0.1% in August. The price index for a broad set of energy sources fell by 2.1% in September as a decline in gasoline (-4.9%) partly offset an increase in electricity (+0.4%) and natural gas index (+2.9%). Excluding the volatile food and energy components, the “core” CPI increased by 0.6% in September, as it did in August.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.6% in September, following an identical increase in August. The indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) both increased by 0.8% over the month. Monthly increases in OER have averaged 0.7% over the last three months. More cost increases are coming from this category, which will add to inflationary forces in the months ahead. These higher costs are driven by lack of supply and higher development costs. Higher interest rates will not slow these costs, which means the Fed’s tools are limited in addressing shelter inflation.
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. The Real Rent Index rose by 0.3% in September. Over the first nine months of 2022, the monthly change of the Real Rent Index increased by 0.1%, on average.
