Economy Watch: Inflation Creeping Upward?

Inflation still hasn't been much of a driving of a factor in the economy, and thus not driving up expenses associated with property management or rental increases.

The drop in energy prices has kept a lid on the overall rate of inflation over the last year or so, but it’s also masking some upward price pressure in other sectors of the economy. Even so, inflation still hasn’t been much of a driving of a factor in the economy, and thus not driving up expenses associated with property management or rental increases. Some property types in some markets—especially apartments in job-growth markets—have experienced healthy rental increases, but that’s mainly because of local market factors.

Still, it’s possible that inflation could make a comeback. The Bureau of Labor Statistics reported on Friday that the Consumer Price Index for All Urban Consumers was unchanged in January. The monthly non-movement of the CPI fit the recent pattern: An increase in prices for all items besides food and energy (the so-called core rate of inflation), which were up 0.3 percent, offset by a decline in the energy index. Put together, the trends lead to the all items index being unchanged.

However, over the last 12 months, the all items index increased 1.4 percent, compared to a 0.7 percent annual increase for the period ending December. The index for all items less food and energy increased 2.2 percent over the last 12 months, a figure that’s been gradually rising over the last several months, according to the BLS, and in fact January 2016 is the largest annual increase in core inflation for more than four years. So while not definitive, there’s an inkling that inflation isn’t quite dead, and might even help keep the Fed on track this year to raise interest rates (though probably not next month).

It’s also unclear how much lower energy prices, particularly gasoline, can go. The national average price of gas has increased slightly in the last week or so, but average prices are still at levels not seen since January 2009, when prices crashed—because of the recession—from mid-2008 highs over $4 a gallon. The current average price of $1.713 per gallon represents a savings of about 56 cents per gallon compared to the same time last year.