Inflation Watch: July 2011

Inflation, or price-level growth, is important for REALTORS® because it ultimately affects mortgage rates and the ability of home buyers to purchase a home.

Palm Coast, FL – August 3, 2011 – In the Inflation Watch Series, National Association of Realtors® 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. Released monthly, Inflation Watch enables REALTORS® to gain the insight needed to confidently discuss this important market factor with other professionals and clients.

About Inflation

Inflation, or price-level growth, is important for REALTORS® because it ultimately affects mortgage rates and the ability of home buyers to purchase a home. If the Federal Open Market Committee (FOMC) lowers interest rates to stimulate the economy, you may see more home buyers in the market; however, lowering rates can also lead to inflation. So, to combat inflation, the central bank increases interest rates—which may dampen economic growth and demand for home buying.

During the recent financial crisis, fears of deflation (price-level decline) were rampant. With financial markets now stable, some fear that inflation is around the corner. There is also the possibility of stagflation, characterized by high unemployment and high inflation. 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.

Highlights

• 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

The Data

View the presentation below to see graphical representations and charts of data, including:

• An overview of consumer and producer price changes
• An in-depth look at the consumer price index (CPI)
• The year-to-year percent change for the CPI
• The year-to-year percent change for the producer price index (PPI)
• Domestic oil prices
• Gold prices
• Import Price Index

Source: National Association of Realtors Research