Last month, the inflation news wasn’t good. This month, it got a whole lot better:
- Retail sales were flat in April.
- Food prices were unchanged from the prior month.
- Better-than-expected jobs data for April included a slower pace of hiring and an increase in weekly unemployment claims (good news for inflation, though not quite so good, of course, if you’re looking for a job).
- PPI data in April was mixed, with the index rising a bit more than expected but revised downward for March. CPI for April was up 3.4% but down modestly from the month before.
- Housing costs make up a third of CPI, and the April numbers even had some good news on housing inflation. Shelter costs fell modestly from 5.7% in March to 5.5% in April.
As we know, rent growth is cooling, and in some markets, rents are actually falling. RealPage reported just this week that rents have fallen, particularly in markets with significant new supply. It’s just that it takes a long time for rent trends to show up in CPI.
CPI doesn’t track home prices but rather a hypothetical “owner’s rent equivalent” or OER, the implicit rent that owner-occupants would have to pay if they rent their homes. As Jeanna Smialek wrote this week in the New York Times, OER has its critics who argue that it is too convoluted to give us a clear understanding of real inflation. Even its defenders concede that OER is “sort of the dark matter of economics” – hard to measure and even harder to understand. Rents – both real rents and OER – will eventually converge with real-world trends. When is uncertain.
Still, if last month’s inflation numbers were a bump in the road, the road got just a bit smoother this month. The direction is positive, rates are down slightly, and the outlook is a little brighter. We’re not there yet, but we moved in the right direction this month.
At AGM, we do our best to keep developers informed of proactive measures you can take to get the most from every deal. Please schedule a call if you have questions or want to discuss your next project.
