Consumer prices experienced their smallest year-over-year gain in October since the start of the year, and inflation, while still elevated, experienced the first month below an 8% annual growth rate since February. According to the NAHB, signs that inflation may have peaked and begun to slow may “ease some of the pressure on the Fed to maintain its aggressive monetary policy.”
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.4% in October on a seasonally adjusted basis, following the same increase in September. Most component indexes continued to increase in October. The indexes for shelter (+0.8%), motor vehicle insurance (+1.7%), recreation (+0.7%), new vehicles (+0.4%) as well as personal care (+0.5%) showed sizeable monthly increases in October. Meanwhile, the indexes for used cars and trucks (-2.4%), apparel (-0.7%), medical care (-0.5%) and airline fares (-1.1%) declined in October.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.8% in October, following an increase of 0.7% in September. This is the largest monthly increase since August 1990. The indexes for owners’ equivalent rent (OER) increased by 0.6% and rent of primary residence (RPR) increased by 0.7% 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 maintain pressure on 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. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). 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 0.4% in October. Over the first ten months of 2022, the monthly change of the real rent index increased by 0.1%, on average.
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