Energy Prices Spike Up; Rents Rise Modestly

NAHB forecasts that inflation as measured by the overall CPI will remain moderate throughout 2011, advancing 1.4 percent for the year. There will be some upward pressure on prices in 2012 with the CPI rising at a 1.7 percent annual rate in the fourth quarter.

On a seasonally adjusted basis, Consumer Price Index for All Urban Consumers rose 0.5 percent in December, the largest monthly increase since the 0.7 percent rise in June 2009. However, on a year-over-year basis the index was up a moderate 1.5 percent.

Energy prices spiked up 4.6 percent for the month, the largest monthly increase since the 7.4 percent jump in June 2009. On a year-over-year basis energy prices were up 7.7 percent. Food prices were up a modest 0.1 percent in December and 1.5 percent from a year earlier.

Household energy price index, after falling 0.4 percent in November, rose 0.8 percent in December, and was up 0.8 percent from a year earlier. Core CPI, which excludes food and energy prices, rose a modest 0.1 percent for the month, and was up a moderate 0.8 percent from a year earlier.

The rental component of CPI rose 0.2 percent for the second month in a row and was up 0.8 percent from December 2009. Owner's equivalent rent, which is largely driven by the rent index without utilities and can be used as a measure of homeownership prices, rose 0.1 percent and increased 0.3 percent from a year earlier.

The rent and owner components of the CPI make up 31 percent of the CPI. The soft rental market and excess vacancies have kept rents from rising as fast as the general CPI over the past year, with the year-over-year increase in the rental index lagging the CPI by 0.7 percent. The rise in rents has matched the increase in the core CPI (0.8 percent).

This is small solace to property owners who face higher energy costs that drive up their operating expenses. Going forward, as the economy improves, rental vacancy rates should fall, putting upward pressure on rents.

- Courtesy of NAHB