In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses consumer prices.

• Consumer prices in July held steady from the month prior, neither increasing nor decreasing.  Compared to one year ago, prices rose 1.4 percent—the smallest advance since November 2010.
• Core prices, a measure that excludes food and energy, rose 0.1 percent in July and were up 2.1 percent from one year ago.
• While overall prices were steady and core prices advanced moderately, rents rose in a sharper fashion.
• Rent of primary residences rose 0.3 percent in July and was 2.8 percent higher than one year ago.  This was the steepest rise in rents since May 2009.  Owner’s equivalent rent, an estimate of the rental value of owner-occupied houses, rose 0.2 percent in July and 2.0 percent in the year, the fifth consecutive month of a near 2 percent gain.
• Because overall price growth is low and core price growth is near the Fed’s target[1] of 2 percent, the Fed has room to continue the current policy stance of keeping interest rates low.  Coupled with rising incomes, low price growth means more purchasing power for consumers, but the threat of higher taxes if Congress cannot reach a deal to avert the fiscal cliff could derail what may otherwise be a positive future for consumers.

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[1] The Fed’s target actually applies to growth in the price index of Personal Consumption Expenditures, a separate inflation measure, but that measure is highly correlated to movements in the Consumer Price Index.