Penn State/ACY Alternative Inflation Index suggests inflation downturn

April 11, 2020

UNIVERSITY PARK, Pa. — The latest Penn State/ACY Alternative Inflation Index analysis revealed that the inflation rate for February was 3.21%, down from 3.31% in January. That reversed a trend of accelerating inflation rates from September 2019.

The Penn State/ACY Core Personal Consumption Expenditure (PCE) Inflation Rate for February continued to increase from 2.12% to 2.29% — above the Federal Reserve’s 2% target rate. In comparison, the Bureau of Labor Statistics (BLS) reported that the year-over-year change in the BLS Consumer Price Index was 2.32% and the Bureau of Economic Analysis (BEA) Core PCE inflation rate stood at 1.82% for the same period. 

The primary factor driving the difference in these inflation rates is the Penn State/ACY Marginal Rent inflation rate. The annual marginal rent inflation rate was 6.10% for February, up from January’s rate of 5.87%. However, in contrast, the BEA PCE Rent and BLS CPI Rent inflation rates were 3.42% and 3.34%, respectively.

The Penn State/ACY Alternative Inflation Index is the result of collaboration among three researchers: Brent Ambrose, Jason and Julie Borrelli Faculty Chair in Real Estate and director of the Institute for Real Estate Studies at Penn State; 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.

Based on Ambrose, Coulson, and Yoshida (2018), the ACY Marginal Rent Index has led the BLS rent series since September 2010. The rental inflation rate reported by the ACY Marginal Rent Index is much higher and more volatile than the BLS CPI Rent Index.

According to Ambrose, the outbreak of the novel coronavirus has raised the risk of a recession for the U.S. and global economies. In response, the Federal Reserve cut its target interest rate by half a percentage point and began a massive program of quantitative easing to stabilize the financial markets. Normally, such moves would foreshadow future inflation expectations, said Ambrose. However, with unemployment rising and economic activity stalling due to government mandated social distancing measures, significant uncertainty exists regarding future inflation.

Last Updated April 13, 2020