Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses inflation and the consumer price index.

  • Inflation is sticking at near 3 percent and refuses to decline.  The consumer price index rose 0.2 percent in January after having been essentially unchanged in the past 3 months.  From this point last year, the price of everything has risen by 2.9 percent on average.
  • The Federal Reserve’s preferred inflation rate is 2.0 percent.  So unless inflation kicks down a notch, the Fed will face the conundrum of either keeping interest rates low and possibly letting inflation get out of hand, or losing credibility by not keeping its verbal commitment to not raise rates for the next 3 years.  Inflation getting out of hand, though the probability for that to occur is low, will mean higher mortgage rates.
  • Gasoline prices were rising in February (which was not captured in January’s CPI).  Further increases at the pump are likely if the U.S. dollar was to weaken in the upcoming months since the oil is priced in dollars.
  • More importantly, the rent component is rising, and this component carries the biggest weight in the CPI computation.  The rent index rose 0.2 percent in the past month and by 2.4 percent from 12 months ago.
  • Early this year the cost-of-living-adjustment for social security checks was 3.5 percent.  Next year, it is likely to be 2.5 to 3.0 percent if inflation retreats a bit by December as the Fed predicts.

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