% Change M/M, All Urban Consumers
The core consumer price index, which excludes food and energy, increased 0.1 percent in November following three consecutive months at zero. The cost of rental housing helped drive the increase as the rent index rose 0.2 percent, a trend that is in line with private surveys of the apartment market. The increase in the core CPI is a hopeful sign that the potential for deflation has diminished. The Federal Reserve’s quantitative easing program and the $858 billion tax package signed into law on Friday will further reduce the chances of deflation. On the other hand, many analysts think these measures, the weak dollar and the continuing growth of the deficit are setting the stage for a serious bout of inflation. Others think the outlook for inflation is benign due to excess capacity in the labor market, factories and real estate that will be slow to return to normal levels. A near-term spike in the broad inflation indexes is unlikely despite volatile food, energy and commodities prices. Expect inflation to remain tame over the next two years, ramping up gradually to a more normal range of 2 to 3 percent. Even if inflation remains low, concern over inflation may be pushing investors toward hard assets including commercial real estate, which is viewed as an inflation hedge.