San Francisco Bay Area Consumer Price Index (CPI) Up 4.7% Year over Year

For the first time since the dot-com era of 1999-2001, inflation rates in the San Francisco Bay Area have increased at more than a 4.5% annualized rate. Many tenants over the past several years have accepted CPI as the determining factor for annual rent escalations. For several years, the CPI method paid off (assuming a 3% floor was not agreed to) since the CPI rose by around 2% annually.

But now, increasing energy and fuel costs have had a dramatic effect on inflation. As a result, the most recent 12-month increase in the Consumer Price Index came in at 4.7%. The CPI index is based on San Francisco Urban Wage Earners and Clerical Workers. Savvy landlords generally utilize this index instead of the All Urban Consumers because it rises faster.

As a tenant, it is always best to fix escalations, particularly when macroeconomic trends point to inflation. If inflation-indexed escalations must be utilized, then it is important to cap the increases under the lease (5% is typical in today’s market, but if inflation continues to rise, then that could go out the window).

The chart below provides a 10-year history of the CPI index for the San Francisco Bay Area.

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