inflation watch 51311
DESCRIPTION
In the Inflation Watch series, NAR Research focuses on the price level. We monitor measures of inflation that affect the business of REALTORS® and summarize their impact, highlighting areas of potential concern in a brief, polished presentation.TRANSCRIPT
May 2011 Inflation Watch
An Eye on PricesMay 13, 2011
Next Release: June 16, 2011
Inflation Watch• Inflation (price-level growth) is important for
REALTORS® because it can lead to shifts in interest rate policy by the Federal Open Market Committee (FOMC).
• Generally, the FOMC lowers interest rates to stimulate the economy. However, rates that are too low may lead to inflation. To combat inflation, the central bank increases interest rates but this policy may dampen economic growth.
• For example, lower mortgage rates could bring home buyers into the market and create jobs while higher mortgage rates caused by inflation or central bank action could reduce demand among home buyers.
Inflation Watch
• During the recent financial crisis, fears of deflation (price-level decline) were rampant. (Deflation caused a downward spiral of prices that destroyed the economy in the Great Depression.)
• With financial markets now stable, some fear that inflation is around the corner. Stagflation, another unpleasant economic condition characterized by high unemployment and high inflation, is also a possibility.
• In stagflation, it is difficult for the central bank to raise interest rates to combat inflation due fear of further job market deterioration if demand is hurt by the increased interest rates.
May 2011 Highlights• Increases in producer prices continue to spill
into consumer prices, especially in energy• A weaker dollar may boost exports, but it
translates into higher import prices• Headline consumer prices have increased far
too quickly in the month for the fifth month in a row; only apparel, computers, and household furnishings have seen price declines recently
• In addition to pressuring the FOMC to raise interest rates, higher prices put stress on consumer budgets
• One piece of good news is that consumers expect gas prices to stop rising
Indicator Source and definitionMonthly Change
Annual Change
Concern ?
Consumer Price Index (CPI)
BLS, Price change of consumer goods and services
0.4% 3.2% Maybe
CPI Core BLS, CPI less food and energy 0.2% 1.3% NoCPI Housing (owners’ equivalent rent)
BLS, CPI housing component (primary residence)
0.1% 0.9% No
Producer Price Index (PPI)
BLS, Price changes domestic producers receive for their output
0.8% 6.8% Maybe
PPI Core BLS, PPI less food and energy 0.3% 2.1% Maybe
PPI Crude Materials BLS, PPI crude / raw materials 4.0% 23.7% YesPPI Residential Construction
BLS, PPI BRES 1.1% 5.8% Maybe
Gold WSJ, Price per ounce of gold 3.5% 28.3% YesWest Texas Crude Oil WSJ, Price per barrel of oil 6.9% 30.3% Yes
Import PricesBLS, Trade-weighted index measures prices of imported goods & services
2.2% 11.1% Yes
Construction Cost Index
Census, constant quality, new single family homes under construction
-0.1% 0.0% No
Consumer and Producer Price Change Overview
IndicatorChange from
previous monthChange from previous year
Concern?
Consumer Price Index (CPI) 0.4% 3.2% MaybeLodging away from home 0.0% 1.7% NoFood at home 0.5% 3.9% MaybeMeats, poultry, fish and eggs 1.1% 7.6% YesHousing fuels and utilities 0.6% 2.6% MaybeHousehold furnishings & operations
0.2% -0.9% No
Transportation 1.4% 11.8% YesMedical care 0.4% 2.9% MaybeHospital and related services 0.6% 5.4% YesEducation 0.3% 3.8% MaybeAirline fare 0.3% 12.1% YesPersonal Computers and peripheral equipment
-0.1% -8.0% No
Apparel 0.2% 0.1% No
Looking at the CPI in More Depth
CPI-U: All Items Less Food and Energy% Change - Year to Year SA, 1982-84=100
CPI-U: All Items% Change - Year to Year SA, 1982-84=100
1009080706Source: Bureau of Labor Statistics 05/13/11
6
4
2
0
-2
CPI-U: Owners' Equivalent Rent/Primary Residence
% Change - Year to Year SA, Dec-82=100
10090807060504030201Source: Bureau of Labor Statistics 05/13/11
5
4
3
2
1
0
-1
PPI: Finished Goods% Change - Year to Year SA, 1982=100
PPI: Finished Goods less Food and Energy% Change - Year to Year SA, 1982=100
1009080706Source: Bureau of Labor Statistics 05/13/11
12
8
4
0
-4
-8
Cash Price: Gold Bullion, London Commodity Price, PM Fix
US$/troy Oz
1009080706Source: Wall Street Journal 05/13/11
1500
1250
1000
750
500
Domestic Spot Oil Price: West Texas Intermediate
$/Barrel
10090807060504030201Source: Wall Street Journal 05/13/11
150
125
100
75
50
25
0
Import Price Index: All Imports
NSA, 2000=100
100908070605040302010005/13/11
150
140
130
120
110
100
90
Houses under Construction: Fixed-Weighted Price IndexNSA, 2005=100
NAR Median Sales Price: Total Existing Homes, United States$
10090807060504030201Sources: Census Bureau, National Association of Realtors 05/13/11
112.5
105.0
97.5
90.0
82.5
75.0
240000
220000
200000
180000
160000
140000