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
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.
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.
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.
Monthly price change from June to July was generally better, but in year over year inflation continues to run high due to previous increases.
While monthly price increases had been seen among commodities earlier in the year, these prices have declined recently while service-sector prices are increasing on a monthly basis
Headline consumer price growth was generally stable in July, but necessities such as education, hospital costs, and food at home are areas of concern; the prices of lodging away from home and apparel also grew at a rate higher than usual this month