CPI vs. PPI: What is the Most Important Metric to Follow for Commercial Real Estate Investments? — Commercial Brokers International - Commercial Real Estate in Los Angeles

Abstract

CPI refers to goods and services bought for consumption by US residents, which can include imports. CPI is primarily used to adjust income and expenditure streams for variations in the cost of living. CPI and the current inflation rate give a property owner insight into how to increase or decrease rent fairly. The impact inflation has on commercial real estate The CPI was at 8.5% in March 2022, the highest in 41 years. When the CPI fluctuates, commercial real estate leases can be determined by tying base or additional rent to the national or regional CPI, which is common in government leases. Because of the fluctuations in inflation, many landlords use a CPI index clause in their leases, which adjusts rent to correspond with changes to inflation rather than a fixed percentage increase. A common CPI clause would include: * The selection of a base month.