Economists' Outlook

Housing stats and analysis from NAR's research experts.

Consumer Price Index

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.

  • Consumer prices (CPI) increased 0.3 percent in December, marking the largest 1-month increase since June 2013. On a year-over-year basis, however, prices rose 1.5 percent, well below the Federal Reserve’s 2 percent inflation target.
  • Data show that energy prices had a big impact on the headline figure for the month. Core inflation—a measure that excludes energy and food prices—was up by a much smaller 0.1 percent on the month. However, energy prices have risen less than other prices throughout the year and core inflation was 1.7 percent—slightly higher than headline inflation—for the year. While the Fed does not target this specific measure, the factors driving the Fed’s preferred measure of inflation are the same, suggesting that there is currently no major inflationary pressure pushing the Fed to tighten monetary policy. If this trend continues, expect a gradual taper followed by moderate increases in the Federal Funds interest rate.
  • One of the big non-energy components of the CPI, the shelter index, rose 0.2 percent for the month and 2.5 percent for the year. This has a big effect on the overall index because shelter is a little more than 30 percent of the index.
  • Rent of primary residences—actual market rents paid by individuals who do not own the home they live in (pictured below)—rose 2.9 percent for the year ending in December 2013. When rents are rising, it becomes more attractive to own a home. Because the bulk of home ownership costs for someone with a 30-year fixed rate mortgage are fixed, even if rents are initially cheaper, potential buyers can expect rent costs to catch up to ownership costs.
  • A few other sub-components of the shelter index show interesting trends. Housing at School, excluding board (pictured below) shows a gradual decline, but this is just a decline in the rate of increase. In fact, for the year ending December 2013, the price of housing at school was still rising at a 3.4 percent rate—faster than that for rent of primary residences. In contrast, Other Lodging Away from Home Including Hotels/Motels (pictured below) shows rough stability—a meager 0.6 percent gain for the year ending in December 2013. While the trend for hotel/motel pricing is more variable, it has seen smaller price gains than housing at school over the last 6 years with only a few exceptions.

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