Consumer prices rose last month, but they still remain low.
By Manuel Gutierrez, Consulting Economist to NKBA
Overall consumer prices rose at a somewhat faster pace in August, with the overall index (CPI) up 1.3% vs. the same month last year. Prices have generally increased since the April collapse when the pandemic shutdown froze most economic activity for several months.
The core CPI showed a similar monthly gain, up 1.7% compared to August 2019. By way of definition, the core excludes the costs of food and energy, since those two items are more volatile and can distort the true picture.
Although the overall CPI can be a helpful indicator of how prices are generally trending, it can be misleading, since a sharp change in an individual item can throw off the entire reading. Such is the case when examining some of the costs involved in housing ownership tracked by the Bureau of Labor Statistics in the CPI data series.
Unfortunately, the Bureau does not track many items within the home, unlike the abundant number of products like food and personal items for which it collects price data.
The chart below provides trends for five items within housing, such as the cost of energy used in residences, as well as the overall category of “housing,” which averages the cost of all products or services used for shelter. The numbers at the right of the trend line in the chart represent total percent increase for each variable since January 2010.
Using this backdrop, the CPI for housing rose 26% over the last decade, an average of 2.6% per year. Since August 2019, however, total housing prices have risen by a more modest 2.1%. In contrast, overall CPI has risen by a smaller 19%, or an annual average of 1.9%. The housing CPI has exceeded the overall CPI since 2015 and is currently seven percentage points higher.
Note that costs for several housing items have fallen since 2010. Windows & Flooring products are currently 22% below their price in 2010. Similarly, Household Appliances are 7% lower than they were 10 years ago. Household Furnishings prices remain at the same levels as in 2010.
The above product categories are in the realm of private industry, which are subject to competition, either from other domestic or foreign manufacturers. The two categories within housing that are higher today than a decade ago, Water & Sewer charges, which are 52% higher, and Household Energy costs, which are 4% higher, are supplied by either government sectors themselves (water & sewer), or in highly regulated industries (energy).
