Housing Continues to Hold Down Core Inflation in June

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July 18, 2007 (Prices Byte)

Housing Continues to Hold Down Core Inflation in June

Prices Byte by Dean Baker

For Immediate Release: July 18, 2007
Contact: Alan Barber, (202) 293-5380 x115

Washington, DC: The overall CPI rose by 0.2 percent in June, bringing the annual inflation rate over the last quarter to 5.2 percent. This is up from a 2.7 percent rate over the last year, and considerably higher than the 4.0 percent rate of wage increase over the quarter. The core index also rose by 0.2 percent in June, as a 0.5 percent jump in food prices was offset by a 0.5 percent decline in energy prices. The core index has risen at a 2.3 percent rate over the last quarter, almost identical to the 2.2 percent rate over the last year.
One of the biggest factors helping to contain core inflation has been the weakness of the housing market. The vacancy rate for ownership units has soared to a record level in the last year, 50 percent higher than the previous peak. The vacancy rate for rental units is also hovering near the record high set two years ago. As a result, there is considerable downward pressure on rents. The owners’ equivalent rent index (OER) has risen at a 1.9 percent annual rate over the last quarter. This component alone accounts for almost 30 percent of the core CPI. A core index that excluded OER would show an inflation rate of 2.5 percent over the last quarter.

The rent index, which tracks actual rents, has risen at a 3.2 percent rate over the last quarter. The difference is attributable to the fact that the rent index includes utilities, which have considerably outpaced the overall rate of inflation in the last few years.

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