Economist's Commentary: June 13, 2008

Quick Take on the Economy: June 13, 2008

By Lawrence Yun, NAR Chief Economist

Inflation rates continue to tick higher. Consumer price inflation rose 0.6 percent in May and is up 4.1 percent from a year ago.
The core inflation - excluding energy and food - rose 0.2 percent in May and is up 2.3 percent from a year ago. This rise is manageable. However, the persistent rise in energy and food costs, rather than fluctuations, says that the core inflation may not be as meaningful as in the past in gauging price pressures.
The rent index decelerated a notch. It rose 3.5 percent from a year ago, compared to 3.6 percent in the prior reading, and down from above a 4 percent reading for all months in 2007. Some of the abundant inventory of homes for sale is also listed as for-rent, and this additional supply no doubt is holding down rent growth.
Owner-occupied equivalent rent rise was stable at 2.6 percent. This measure attempts to measure what the homeowners would be paying in rent for their home if it was a rental home.
Food prices for dining at home (not for eating out) rose at 5.8 percent from a year ago. The strong increase in this measure is damaging consumer finances and greatly hurting consumer confidence.
The Fed's comfort zone is for about a 2 percent inflation rate for the headline inflation rate. So prices are rising currently at twice the pace of the comfort zone.

Consumers are not happy. The measurement by the University of Michigan fell again.
The current reading is lower than that which occurred in the recessions of 2001 and early 1990s. It nearly matches the low point during the deep recession of early 1980s when the unemployment rate rose to above 10 percent.

Inflation is a concern and has become the number one focus of the Fed. The Fed will certainly no longer cut rates even if the economy goes into deep recession.
Consumers are hurting and telling us. The big rises in food and energy prices are daily reminders that something is not right.
Inflation is projected to decelerate. I anticipate it will slide to about 3 percent by early next year from the current above 4 percent.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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