Rent prices continue to rise according to the Consumer Price Index: ‘unlikely’ they will slow down soon, expert says
Inflation soared in May, with the all-items CPI-U rising 8.6% for the 12 months from May 2021 to May 2022 – the biggest 12-month increase since December 1981 , according to data from the consumer price index (CPI) released on June 10. Although the increase was widespread, it should be noted that one essential element – housing – has risen 5.5% over the past year, the largest 12-month increase for this category since the period lasted. ending in February 1991, according to data from the Bureau of Labor Statistics (BLS).
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Ken Shinoda, portfolio manager at DoubleLine Capital, told GOBankingRates that “the war in Ukraine continues to put pressure on supply, which will keep oil and energy prices high. This is reflected in the overall CPI. What should be of more concern is that the housing component of the CPI continues to climb as high house prices feed through into rental rates, continuing to rise.
Indeed, the housing index rose 0.6% in May, the largest monthly increase since March 2004, according to the BLS. At the same time, the rent index increased by 0.6% over the month, the same increase as in April, and the index of owners’ equivalent rents also rose by 0.6%.
Rusty Vanneman, chief investment strategist at Orion Advisor Solutions, told GOBankingRates that “the spike in inflation growth is still not here. Although I am optimistic that peak inflation is near, price peaks are still likely a long way off.
Rent increases show no signs of slowing down
Vanneman added that while rising food and energy prices are an easy problem to identify, housing rents — both for tenants and for the rental value of owner-occupied homes — continue to rise sharply.
“In short, expect rents to be a key inflationary driver for the rest of this year and next, as rents make up more than 30% of the overall CPI,” he said. “First, rents follow housing prices with a lag. Since the start of COVID, housing prices have increased by more than 30%. Rents, however, are not just asset-based. They are also income-driven and as wage incomes continue to rise rapidly, rents are unlikely to slow down any time soon,” he added.
“Rent, in addition to airfare and other travel costs, has increased tremendously over the past month,” Pawan Gupta, CEO of Fashinza, told GOBankingRates. “The reacceleration of inflation is making it difficult for consumers to pay for everyday purchases, let alone pay for rental accommodation and housing. Coupled with high unemployment rates, this period of inflation weighs heavily on Americans.
And it’s not just primary residences that have seen their prices skyrocket. The index for out-of-home accommodation also rose 0.9% in May after larger increases in recent months. Over the year, the index rose 19.3%, according to BLS data.
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This data is in line with figures provided by a recent Bloomberg report, which noted that – according to hotel market data provider STR – prices for hotel stays have increased by around 33% in the United States over the past from last year, based on national averages for April and May, as GOBankingRates previously reported.
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