Inflation Watch: June 2011
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Transcript of Inflation Watch: June 2011
June 2011 Inflation Watch
An Eye on PricesJune 17, 2011
Next Release: July 15, 2011
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, 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.
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 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.
June 2011 Highlights
• Monthly price change from May to June was generally better, but increases that occurred in previous months have kept year over year inflation high.
• Increases in producer prices continue to spill into consumer prices; if the monthly decline in energy prices persists, this could reduce price pressure
• Headline consumer price growth was generally slower in June, but necessities such as education, hospital costs, and food at home are areas of concern; the price of lodging away from home also grew at a rate higher than usual this month
Indicator Source and definitionMonthly Change
Annual Change
Concern ?
Consumer Price Index (CPI)
BLS, Price change of consumer goods and services
0.2% 3.6% Yes
CPI Core BLS, CPI less food and energy 0.3% 1.5% NoCPI Housing (owners’ equivalent rent)
BLS, CPI housing component (primary residence)
0.1% 0.9% No
Producer Price Index (PPI)
BLS, Price changes domestic producers receive for their output
0.2% 7.3% Yes
PPI Core BLS, PPI less food and energy 0.2% 2.1% Maybe
PPI Crude Materials BLS, PPI crude / raw materials -4.1% 22.8% YesPPI Residential Construction
BLS, PPI BRES 0.7% 5.9% Maybe
Gold WSJ, Price per ounce of gold 3.5% 26.0% YesWest Texas Crude Oil WSJ, Price per barrel of oil -7.9% 37.2% Yes
Import PricesBLS, Trade-weighted index measures prices of imported goods & services
0.2% 12.5% Yes
Construction Cost Index
Census, constant quality, new single family homes under construction
0.7% 1.6% No
Consumer and Producer Price Change Overview
IndicatorChange from
previous monthChange from previous year
Concern?
Consumer Price Index (CPI) 0.2% 3.6% YesLodging away from home 2.9% 2.2% NoFood at home 0.5% 4.4% YesMeats, poultry, fish and eggs 1.5% 8.5% YesHousing fuels and utilities 0.4% 3.4% MaybeHousehold furnishings & operations
0.2% -0.7% No
Transportation -0.3% 13.1% YesMedical care 0.2% 3.0% MaybeHospital and related services 0.7% 5.6% YesEducation 0.4% 3.9% YesAirline fare -1.3% 9.1% MaybePersonal Computers and peripheral equipment
-1.5% -7.5% No
Apparel 1.2% 1.0% No
Looking at the CPI in More Depth
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
1009080706Source: Bureau of Labor Statistics 06/17/11
6
4
2
0
-2
CPI-U: Owners' Equivalent Rent/Primary Residence
% Change - Year to Year SA, Dec-82=100
10090807060504030201Source: Bureau of Labor Statistics 06/17/11
5
4
3
2
1
0
-1
PPI: Finished Goods% Change - Year to Year SA, 1982=100
PPI: Finished Goods less Food and Energy% Change - Year to Year SA, 1982=100
1009080706Source: Bureau of Labor Statistics 06/17/11
12
8
4
0
-4
-8
Cash Price: Gold Bullion, London Commodity Price, PM Fix
US$/troy Oz
1009080706Source: Wall Street Journal 06/17/11
1600
1400
1200
1000
800
600
400
Domestic Spot Oil Price: West Texas Intermediate
$/Barrel
10090807060504030201Source: Wall Street Journal 06/17/11
150
125
100
75
50
25
0
Import Price Index: All Imports
NSA, 2000=100
100908070605040302010006/17/11
150
140
130
120
110
100
90
Houses under Construction: Fixed-Weighted Price IndexNSA, 2005=100
NAR Median Sales Price: Total Existing Homes, United States$
10090807060504030201Sources: Census Bureau, National Association of Realtors 06/17/11
112.5
105.0
97.5
90.0
82.5
75.0
240000
220000
200000
180000
160000
140000