Report | Say goodbye to compressing cap rates for April 18, 2018
Various inflation measures accelerated during March, as expected. Both the consumer price index (CPI) and the producer price index (PPI) showed noteworthy increases. The jump in the CPI was largely driven by the significant decline in wireless phone services in March 2017. Importantly, inflation in recent periods has been ramping up. The core CPI grew at an annualized rate of 3.0 percent in the first quarter, its fastest quarterly growth rate since the second quarter of 2006. Short-term interest rates crept higher, fueled by quicker inflation, the Fed, and more optimistic feelings. The yield curve flattened further and should continue to do so this year. Rising interest rates have not yet pressured cap rates, but it appears that the cap rate compression cycle has ended. Over time, cap rates will feel the cumulative impact of higher interest rates.
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