The CPI Index captures trends in consumer prices, the stuff that you and I all consume each day in various ways. The CPI Index is roughly comprised of 40% housing costs, 20% for food costs, and 40% a catch-all of other expenses. One big driver of CPI inflation in 2022 was the sharp rise in rental prices paid – but as the chart below notes that now appears to be over.
RealPage offers software solutions to the multi-family rental industry. They have great data on what is going on under the hood in rental apartments and the chart below says that the best days for big rent increases is now behind us. In early 2022, annualized rent growth spiked +15% YoY but that now has come down to earth. Most recent data out of RealPages notes just +2.3% YoY increase in rent – back to the average for the 10y prior to the post COVID stimulus spike in rental prices.
The implications for markets/portfolios are that headline CPI readings are likely headed materially lower in the coming months. The Fed knows this data and sees this data too. Odds for a June 2023 Fed rate hike now down to 22% today from 60% two weeks ago. I think the Fed is now indefinitely in “pause mode” with regards to rates. Fed chair Powell can take the summer off.
Source: EISI as of June 5, 2023
Richard Barrett
Chief Investment Officer
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