U.S. Housing Inflation Slows in 2008
By David Andrews
Two broad measures of housing inflation slowed in 2008. According to data released by the Bureau of Labor Statistics (BLS), the Rent component of the Consumer Price Index (CPI) slowed to 3.4 percent from 4.3 percent in 2007. Meanwhile, the larger and more important component of the CPI called the Owners’ Equivalent Rent of Primary Residence (OER) slowed to 2.4 percent in 2008, down from 3.4 percent in 2007. Overall consumer inflation as measured by the CPI grew by 3.8 percent in 2008, up from 2.8 percent in 2007, but this is largely due to the run-up in energy prices during the first half of last year.
The largest component in the overall Consumer Price Index is the Owners’ Equivalent Rent of Primary Residence. The OER accounts for nearly one-fourth (23.94 percent) of the total CPI. According to the BLS, OER measures the change in the implicit rent and is the amount a homeowner would pay to rent or would earn from renting his or her home in a competitive market. From December 2007 to December 2008, the 12-month OER measure of consumer inflation slowed to 2.1 percent.
Although housing costs as measured by the Owners' Equivalent Rent component of the Consumer Price Index slowed and showed only a modest increase during the fourth quarter of 2008, core inflation, as measured by the CPI excluding food and energy, grounded to a halt. On a seasonally adjusted basis, the CPI, excluding food and energy, fell at a compound annual rate of 0.3 percent during the last quarter of 2008. For the year as a whole, core inflation grew at 2.3 percent, the same as the previous year. (See chart)
Disinflation is the slowing of inflation, but deflation is an actual decline in prices. Since early last July, when oil prices peaked above $145 a barrel, energy prices have fallen precipitously. Lower oil prices dragged down overall inflation both at the wholesale and consumer levels. From December 2007 to December 2008, the overall CPI grew at just 0.1 percent in 2008, down from the 12-month rate of 4.1 percent measured during the previous year.
The risk of deflation in the broader economy in 2009 is real. Including food and energy, the overall CPI fell at an annual rate of 12.7 percent during the fourth quarter of 2008. If the overall CPI declines in 2009, it would be the first time that this has occurred in more than 50 years. In 1955, the overall Consumer Price Index fell by 0.4 percent.
Whether the decline in core consumer prices is a temporary phenomenon or the beginning of a long-term trend cannot yet be determined. In addition, the impact of the recently passed $787 billion American Recovery and Reinvestment Act of 2009 on inflation remains to be seen. The Congressional Budget Office report released earlier in February 2009 did not specifically address the inflationary impact of the bill. Economists disagree on both the short-term and long-term impact of the Recovery and Reinvestment Act of 2009, commonly referred to as the Economic Stimulus Plan of 2009.
Source: Bureau of Labor Statistics (http://www.bls.gov/).
Check out my original post at AC:
Two broad measures of housing inflation slowed during 2008.
http://www.associatedcontent.com/article/1479402/housing_inflation_slows.html
By David Andrews
Two broad measures of housing inflation slowed in 2008. According to data released by the Bureau of Labor Statistics (BLS), the Rent component of the Consumer Price Index (CPI) slowed to 3.4 percent from 4.3 percent in 2007. Meanwhile, the larger and more important component of the CPI called the Owners’ Equivalent Rent of Primary Residence (OER) slowed to 2.4 percent in 2008, down from 3.4 percent in 2007. Overall consumer inflation as measured by the CPI grew by 3.8 percent in 2008, up from 2.8 percent in 2007, but this is largely due to the run-up in energy prices during the first half of last year.
The largest component in the overall Consumer Price Index is the Owners’ Equivalent Rent of Primary Residence. The OER accounts for nearly one-fourth (23.94 percent) of the total CPI. According to the BLS, OER measures the change in the implicit rent and is the amount a homeowner would pay to rent or would earn from renting his or her home in a competitive market. From December 2007 to December 2008, the 12-month OER measure of consumer inflation slowed to 2.1 percent.
Although housing costs as measured by the Owners' Equivalent Rent component of the Consumer Price Index slowed and showed only a modest increase during the fourth quarter of 2008, core inflation, as measured by the CPI excluding food and energy, grounded to a halt. On a seasonally adjusted basis, the CPI, excluding food and energy, fell at a compound annual rate of 0.3 percent during the last quarter of 2008. For the year as a whole, core inflation grew at 2.3 percent, the same as the previous year. (See chart)
Disinflation is the slowing of inflation, but deflation is an actual decline in prices. Since early last July, when oil prices peaked above $145 a barrel, energy prices have fallen precipitously. Lower oil prices dragged down overall inflation both at the wholesale and consumer levels. From December 2007 to December 2008, the overall CPI grew at just 0.1 percent in 2008, down from the 12-month rate of 4.1 percent measured during the previous year.
The risk of deflation in the broader economy in 2009 is real. Including food and energy, the overall CPI fell at an annual rate of 12.7 percent during the fourth quarter of 2008. If the overall CPI declines in 2009, it would be the first time that this has occurred in more than 50 years. In 1955, the overall Consumer Price Index fell by 0.4 percent.
Whether the decline in core consumer prices is a temporary phenomenon or the beginning of a long-term trend cannot yet be determined. In addition, the impact of the recently passed $787 billion American Recovery and Reinvestment Act of 2009 on inflation remains to be seen. The Congressional Budget Office report released earlier in February 2009 did not specifically address the inflationary impact of the bill. Economists disagree on both the short-term and long-term impact of the Recovery and Reinvestment Act of 2009, commonly referred to as the Economic Stimulus Plan of 2009.
Source: Bureau of Labor Statistics (http://www.bls.gov/).
Check out my original post at AC:
Two broad measures of housing inflation slowed during 2008.
http://www.associatedcontent.com/article/1479402/housing_inflation_slows.html
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