Highest Rent Inflation Since 2007 Sends Core CPI Above Fed's Target For 14th Consecutive Month

Tyler Durden's picture

US headline inflation rose for a 5th consecutive month, and has not seen a negative print since February, following today's report that CPI in December rose 0.3%, and up 2.1% from a year ago, the highest since June 2014. Both measures came in line with expectations as energy and gas costs rise and rents and medical costs continued to rise.

Energy costs increased 1.5% from a month earlier, as gasoline rose 3%. Food prices were unchanged for a sixth month, however thiw as more than offset by shelter expenses which climbed 0.3%, reflecting a jump in rental costs.

As shown below, rent inflation rose 4.0% in December, the highest annual increase since December 2007, pushing shelter inflation up 3.6% Y/Y.

The core CPI measure increased 2.2 percent from December 2015, after rising 2.1 percent in the prior 12-month period.  Core inflation has now printed above the Fed's target rate of 2.0% for 14 consecutive months.

Continued rising prices should further boost inflation and strengthening the case for the Fed to keep raising interest rates this year, although the Fed’s preferred gauge of inflation, the personal consumption expenditures price measure, which puts a lower emphasis on rents, rose only 1.4% in November from a year earlier; it hasn’t matched the central bank’s 2 percent goal since April

“Consumer prices have trekked higher over the past few months on the back of higher energy prices,” Sam Bullard, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in a note before the report. The Fed is “well-positioned for multiple rate hikes in 2017” with inflation near target and unemployment below 5 percent, he wrote.

Some more details on core prices:

The index for all items less food and energy increased 0.2 percent in December. The shelter index rose 0.3 percent in December, the same increase as in November, with the indexes for rent and owners' equivalent rent both repeating their November increases of 0.3 percent. The index for motor vehicle insurance rose 0.8 percent in December following a 1.0 percent rise the prior month. The medical care index, which was unchanged in October and November, rose 0.2 percent in December. The hospital services index rose 0.3 percent, and the index for prescription drugs increased 0.2 percent.


The education index also increased in December, rising 0.5 percent. The index for airline fares increased 1.9 percent after declining in November. The index for used cars and trucks rose 0.5 percent, its largest increase since April 2015. The index for new vehicles increased slightly, rising 0.1 percent after falling 0.1 percent in November. Also increasing in December were the indexes for tobacco (0.4 percent), personal care (0.3 percent), household furnishings and operations (0.1 percent), and alcoholic beverages (0.1 percent).


The recreation index was unchanged in December. The apparel index, which fell 0.5 percent in November, declined 0.7 percent in December. The communication index also fell in December, decreasing 0.1 percent.

In short, prices continue to rise and will only accelerate should any of Trump's proposed fiscal measures be implemented.

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LawsofPhysics's picture

...and yet the federal funds rate remains stuck at ZERO!!!!!

No matter, such "let the majority eat cake" monetary, political, social, and economic experiments always end the same way.


LawsofPhysics's picture

Yes, it is indeed a club motherfucker, what are you going to do about it?

Remember all animals are created "equal" it's just that some animals are "more equal" than others...

A. Boaty's picture

Average credit card APR goes up in lockstep with the federal funds rate, while interest banks pay on savings doesn't increase.


ghostofelvis's picture

Rent is utterly unaffordable.  Jobs don't pay enough to keep up.  They criticize snowflakes for still living with their parents but rent is utterly unaffordable.  

Hubbs's picture

I think maybe a better indicator would be the occupancy rate of apartments. A sort of corollary to the basement dwellers who move back in with their parents.

Are renters now sharing the cost of apartments to defray costs?

gatorengineer's picture

Curious and a serious question how can rent go up if no one can afford them?  should be supply and demand.  Is this all Section 8 expansion driven?

Philo Beddoe's picture

Inelastic demand. One big pack of cigarettes that you get to sleep in. 

Frontline Retailer's picture

Section 8 is one culprit, another is that the financial sector got into the housing market. 

SmilinJoeFizzion's picture

Buy a new fridge- keeps the beer cold and you can sleep in the box

Dirtnapper's picture

Just shove more people in an apt, rent gets paid eventually.

Paul John Smith's picture

If Trump keeps his promises?


Flankspeed60's picture

The author should not confuse the term 'inflation' with supply and demand issues. 'Inflation' is caused by the government printing and diluting its currency, thus devaluing it and causing overall prices to rise. Rising rents in the current housing market are caused by a tighter mortgage climate, with rising property taxes and maintenance costs a contributing factor. Admittedly, the effects on the consumer are the same - just two completely different causes.

ejmoosa's picture

If the asking price is rising despite consistent demand, that is inflation.

Inflation is a tax, just as property taxes are obviously tax.  So why are property taxes rising?  Because the dollars collected are not going as far when the governments try to do their thing.

Demand for one or more roommates, despite having risen since 2007, is about to skyrocket.  And the supply of potential roommates is set to do the same.


Flankspeed60's picture

The price is NOT rising because of 'consistent demand' - rent is rising because folks cannot buy houses as easily, so more people are moving into rentals. That is NOT inflation. 'INFLATION' is ONLY caused by the dilution of currency.

rent slave's picture

A cause that you're missing is the need to send money to help fight Hezbollah.

rent slave's picture

My rent has gone from $100 in 1968 to $1180 today,about 50 per cent higher than the general price level.I'm shooting for the world record for most consecutive years paying rent,thanks to The $aturday People.

FreeShitter's picture

"Thank you for your continued slavery "- Some heeb

Homey Da Clown's picture

so me and Mrs. Clown have been renting for some time.. looking to buy a home but the prices of homes where I live are ridiculous- but we are also paying a ridiculous rent as well.. Caught in a viscious cycle where we will either be house poor or stuck in renting and when you start getting older, you want to have  place to live.   Any decent home is north of $300,000 and equates to around the same monthly payment as current rent- which is what we are tryung to get out from under....




Silver Savior's picture

Then why not live in a van down by the river and get filthy rich from not having to shell out the money?

directaction's picture

Rent will go higher in order to match the increases in minimum wage.
Most renters are lower wage earners. I said most. 
You think they'll see a dime of the minimum wage jump? Lol. No way. 

Silver Savior's picture

All these communist landlords are killing us. Just wait for the next big wave of foreclosures and buy for pennies on the dollar. Everything is unsustainable just hang tight. Credit will dry up and that will be the end of this shit. 2008/09 was just a little guy. Meet the fucking silver back gorilla coming to a gated community near you.

katagorikal's picture

Raising interest rates would squeeze shale frackers, especially those exposed to HY market. So they would pump existing wells, using the cashflow to pay off debts, but not drill any new ones. Declining oil production increases the oil price, which causes inflation. So we raise interest rates, oh, .... we already did that.