UNIVERSITY PARK, Pa. — The July 2020 release of the Penn State/ACY Inflation index suggests that the United States annual inflation rate continued to decelerate, dropping to .86% for May 2020 from the April rate of 1.18%.
The overall decline in inflation continues the trend that began in March 2020 with a general drop in energy and other prices, but now also reflects a general downward trend in rental inflation. For May 2020, the Penn State/ACY Marginal Rent inflation rate was 4.55%, down from the April rate of 5.17%.
The Penn State/ACY Core Personal Consumption Expenditure (PCE) Inflation Rate for May also declined from 1.4% to 1.26%, and is below the Federal Reserve’s 2% target rate. In comparison, the Bureau of Labor Statistics (BLS) also reported that the May year-over-year change in the BLS Consumer Price Index declined to .24% and the Bureau of Economic Analysis (BEA) Core PCE inflation rate stood at 1.02%, both down considerably from the April rates.
By looking at the monthly percentage change in the Penn State/ACY Marginal Rent series rather than the traditional year-over-year percentage change, the Marginal Rent series shows a rapid weakening in average rental rates across the United States — dropping to .03% in May as compared to the .31% rate in March.
“The COVID-19 pandemic continues to hammer the U.S. and global economies. The observed declines in inflation reflect the effects of government-ordered shutdowns and social distancing measures that began in mid-March. The downward trend in the Penn State/ACY Marginal Rent series reflects declines in multi-family transaction volume and falling rent collections,” said Brent Ambrose, Jason and Julie Borrelli Faculty Chair in Real Estate and director of the Institute for Real Estate Studies at Penn State Smeal.
“However, significant uncertainty continues to surround future rental rates as it is unclear how government policies designed to protect households from evictions and mortgage foreclosures will affect the ability of landlords to respond to market pressures. In addition, new construction activity is slowing as the crisis continues, which will impact future supply," said Ambrose.
The Penn State/ACY Alternative Inflation Index is the result of collaboration among three researchers: Ambrose; Jiro Yoshida, associate professor of business at Smeal; and, N. Edward Coulson, professor of economics and director of the Center for Real Estate at the University of California Irvine’s Paul Merage School of Business.