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An Eye on Prices June 15, 2012 Next Release: July 18, 2012
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, the FOMC has extended its commitment to keeping rates low through late 2014 to help shore up economic activity, but this commitment comes with its own set of risks.
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 somewhat 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.
Indicator
Consumer and Producer Price Change Overview Monthly Annual Concern Source and definition Change Change ?
BLS, Price change of consumer goods and services BLS, CPI less food and energy BLS, CPI housing component (primary residence) BLS, Price changes domestic producers receive for their output BLS, PPI less food and energy BLS, PPI crude / raw materials BLS, PPI BRES WSJ, Price per ounce of gold WSJ, Price per barrel of oil BLS, Trade-weighted index measures prices of imported goods & services Census, constant quality, new single family homes under construction -0.3% 0.2% 0.1% -1.0% 0.2% -3.2% -0.3% -3.3% -8.4% -1.0% 0.5% 1.7% 2.3% 2.1% 0.7% 2.7% -7.7% 1.9% 5.1% -6.5% -0.3% -0.7% No Maybe No No No Maybe No Maybe No No No
Consumer Price Index (CPI) CPI Core CPI Housing (owners equivalent rent) Producer Price Index (PPI) PPI Core PPI Crude Materials PPI Residential Construction Gold West Texas Crude Oil Import Prices Construction Cost Index
-2
Source: Bureau of Labor Statistics
07
08
09
10
11
06/15/12
-1 02
Source: Bureau of Labor Statistics
03
04
05
06
07
08
09
10
11
06/15/12
12
-4
-8
Source: Bureau of Labor Statistics
07
08
09
10
11
06/15/12
1800
1600
1400
1200
1000
800
600
Source: Wall Street Journal
07
08
09
10
11
06/15/12
140
120
100
80
60
40
20 02
Source: Wall Street Journal
03
04
05
06
07
08
09
10
11
06/15/12
150
140
130
120
110
100
90 01 02 03 04 05 06 07 08 09 10 11
06/15/12
110
240000
105
220000
85
80
Sources: Census Bureau, National Association of Realtors
140000 02 03 04 05 06 07 08 09 10 11
06/15/12