Intelligent Investment

Economic Watch: Inflation Hits 8.5% in March; Near-Term Real Estate Recovery Continues

April 12, 2022 3 Minute Read

Executive Summary

  • The Consumer Price Index (CPI) rose by 8.5% on a 12-month basis in March—the biggest increase since December 1981. Core inflation, which excludes food and energy prices, was in line with economists’ consensus estimate at 6.5%.
  • On a month-over-month basis, core inflation rose by 0.3%, below the consensus estimate of 0.5% and therefore indicating that some inflationary pressure may be easing.
  • CBRE expects inflation will remain elevated throughout 2022. The CPI should ease mildly, ending the year at 6.2% before pulling back further in 2023.
  • The near-term outlook for commercial real estate remains positive, as consumers continue to spend and businesses maintain pricing power.
  • CBRE expects the Federal Reserve to raise its benchmark interest rate by 50 basis points (bps) later this month and potentially again in June, followed by at least three 25-bp hikes later this year.
  • Although the near-term outlook remains positive, we see risks amid slowing economic growth, higher interest rates and persistent inflation.

March CPI

Headline inflation increased by 8.5% annually in March (1.2% month-over-month)—the biggest increase since December 1981. This was largely due to gasoline, food and housing price increases. Core inflation, which excludes food and energy, was also elevated, increasing 6.5% over the past year.

Impacts on Commercial Real Estate


Consumers were particularly hard-hit by price increases in essential goods and services last month. Housing costs, which account for almost one-third of CPI weighting, rose by 5% over the past 12 months (0.5% month-over-month). Food increased 8.8% annually, while “food at home” increased by 10%. A shortage of housing and a strong labor market underpin the multifamily market and we expect fundamentals to remain healthy. However, wage growth is not keeping up with inflation and strained household budgets may begin to weigh on the ability of landlords to increase rents.


Gas prices rose by 48.0% annually in March (18.3% month-over-month). Trucking and logistics companies are feeling that pain at the pump and there are signals that consumers are shifting spending from goods to services. While slowing consumption is a drag on industrial & logistics demand, retailers have increased inventories to achieve operational resilience amid supply chain disruptions. In short, we expect industrial demand to remain healthy even as consumers are stretched, thanks to continued efforts to mitigate supply chain disruptions with larger inventories.


Price increases have broadened beyond goods and are up substantially for services as well, indicating companies have pricing power to maintain plans over the near term. Prices for financial services grew by 6.2% annually in March (2% month-over-month), while legal services were up by 5.4% annually (0.4% for the month). Still, economic growth concerns will likely weigh on the office market later in the year, slowing its pace of recovery.


Retail sales remain strong amid rising prices. “Food away from home” increased by 6.9% annually (0.3% month-over-month). Apparel rose by 6.8% annually (0.6% for the month). With the summer travel months approaching, consumer spending will continue to shift from goods to services. This will help restaurants and tourism-related retail, but we expect to see some softening in goods consumption as the year progresses.


Airline fares rose by 10.7% annually (5.2% month-over-month). Strong demand amid rising air fares and high gas prices are evidence that while inflationary pressures will chip away at consumption, relatively healthy balance sheets and pent-up demand will still fuel robust demand in tourist-related sectors this year. As a result, we expect the near-term outlook for hotels to remain strong.

Looking Ahead

CBRE expects inflationary pressures will mildly decrease as the year goes on and pull back further in 2023. Combined with higher interest rates, high inflation will weigh on economic growth. Strong consumer balance sheets underpin a positive outlook during the next several months but risks are mounting, particularly if inflation is exacerbated by geopolitical events or rising wages.

We generally expect real estate fundamentals to remain strong and continue improving near term. However, as economic growth begins to slow, we expect commercial real estate demand likely will cool, particularly in price-sensitive segments of the hospitality, retail, multifamily and industrial sectors.