UNIVERSITY PARK, Pa. — The May 2020 Penn State/ACY Alternative Inflation Index analysis suggested that the United States annual inflation rate continued to decelerate, dropping to 2.52% for March from the February rate of 3.21%.
The decline resulted from the general drop in energy and other prices as the Penn State/ACY Marginal Rent inflation rate increased 6.18% for March, an increase from February’s rate of 6.1%.
The Penn State/ACY Core Personal Consumption Expenditure (PCE) Inflation Rate for March also declined from 2.31% to 2.2%, still above the Federal Reserve’s 2% target rate. In comparison, the Bureau of Labor Statistics (BLS) also reported that the March year-over-year change in the BLS Consumer Price Index declined to 1.52% and the Bureau of Economic Analysis (BEA) Core PCE inflation rate stood at 1.7%, both down considerably from February’s rates.
“The COVID-19 pandemic is clearly hammering the U.S. and global economies. However, the effects of government ordered shutdowns and social distancing measures are only just now appearing in the economic statistics,” said Brent Ambrose, Jason and Julie Borrelli Faculty Chair in Real Estate and director of the Institute for Real Estate Studies at Penn State.
“As a result, the uptick in the Penn State/ACY Marginal Rent series largely reflects transactions that occurred during the first half of March, prior to most state ordered lockdown measures. We anticipate that declining transaction volume coupled with falling rent collections in late March and April will become apparent in next month’s release. However, significant uncertainty surrounds 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.”
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.
Based on Ambrose, Coulson and Yoshida (2018), the rental inflation rate reported by the ACY Marginal Rent Index is much higher and more volatile than the BLS CPI Rent Index. With unemployment rising and economic activity stalling due to government mandated social distancing measures, significant uncertainty exists regarding future inflation.