- Inflation remained moderate in November with overall prices flat, but prices are still noticeably higher than a year ago. - Some prices like food, transportation and medical services are rising at concerning rates. - The Federal Reserve will likely continue its low interest rate policy through mid-2013 to support economic growth, though this could increase inflation risks.

1. December 2011 Inflation Watch An Eye on Prices December 19, 2011 Next Release: January 20, 2011

2. 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 committed to keeping rates low through mid-2013 to help shore up economic activity, but this commitment comes with its own set of risks.

3. 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.

4. December 2011 Highlights Price growth in the month of November continued to moderate or decline in a variety of measures such as lodging away from home, food prices, and home fuels and utilities. This caused the overall headline measure to be flat in the month. However, strong price growth in previous months means that prices are still noticeably higher than one year ago. While core (those excluding food and energy) and headline consumer prices are within the bounds of the target range: 1 to 2 and 2 to 4 percent respectively, they are continue to near the upper edge of the bound. November’s relaxation in price growth means that the Fed will likely continue the low-rate policy to which it is committed through mid-2013. Some consumer prices are advancing at a considerable rate. Necessities such as transportation, food at home, and hospital services are areas of concern.

7. PCUSLFE 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 PCUSLFE.EMF (USECON) PCUSLFE / PCU 10603-11102

8. PCUHSHO CPI-U: Owners' Equivalent Rent/Primary Residence % Change - Year to Year SA, Dec-82=100 PCUHSHO.EMF (USECON) PCUHSHO 10103-11102

9. SP3000 PPI: Finished Goods % Change - Year to Year SA, 1982=100 PPI: Finished Goods less Food and Energy % Change - Year to Year SA, 1982=100 SP3000.EMF (USECON) SP3000 / SP3500 10603-11102

10. PZGOL Cash Price: Gold Bullion, London Commodity Price, PM Fix US$/troy Oz PZGOL.EMF (USECON) PZGOL 10603-11102

11. PZTEX Domestic Spot Oil Price: West Texas Intermediate % Change - Year to Year $/Barrel PZTEX.EMF (USECON) PZTEX 10103-11102

12. PMEA Import Price Index: All Imports NSA, 2000=100 PMEA.EMF (USECON) PMEA 10004-11103

13. CCIHF Houses under Construction: Fixed-Weighted Price Index NSA, 2005=100 NAR Median Sales Price: Total Existing Homes, United States $ CCIHF.EMF (USECON) CCIHF / USMNBDP 10102-11101