Inflation is important for real estate agents because it can influence interest rate policy set by the Federal Reserve. The Fed typically lowers rates to stimulate the economy but higher rates may be used to combat inflation. This document discusses recent inflation trends, including rising producer and energy prices beginning to impact consumer prices. There is an expectation among economists of further price and cost increases. Some fear that high inflation or stagflation, with high unemployment and inflation, could occur.

1. RESEARCHApril 2011 Inflation WatchAn Eye on PricesApril 15, 2011Next Release: May 13, 2011

2. Inflation WatchInflation (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.RESEARCH

3. Inflation WatchDuring 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. RESEARCH

4. April 2011 HighlightsIncreases in producer prices are beginning to creep into consumer prices, especially in energy pricesHeadline consumer prices increased far too quickly in the month; only apparel, computers, and household furnishings have seen price declinesA survey of industry economists finds rising prices and the expectation of further price and cost increasesRESEARCH

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