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Inflation
|
|
|
|
 |
| MOST RECENT STATISTIC: |
2.7% |
|
|
| GRADE: |
B |
| PERIOD COVERED: |
Dec. 2009 |
| Date Released: |
01/15/10 |
|
|
|
| Next Released: |
02/17/10 |
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|
|
|
|
|
12/09 |
11/09 |
10/09 |
12/08 |
12/07 |
|
| 1-Year CPI % Change |
2.7% |
1.8% |
(0.2%) |
0.1% |
4.1% |
| - less Food &
Energy |
1.8% |
1.7% |
1.7% |
1.8% |
2.4% |
|
|
|
|
|
|
| GDP Price Deflator |
- |
- |
0.4% |
4.1%
|
1.7%
|
| Empl Cost Index |
- |
- |
1.5%
|
2.9% |
3.3% |
|
| Source:
Bureau of Labor Statistics: Bureau of Economic Analysis |
Analysis
for the Housing Market
By: Ken Lee
The consumer price index declined on an unadjusted basis in December due to a tame increase in energy prices along with a decline in recreation prices. Inflation on the consumer level remains well-contained and below the historical rate. The consumer price index in December decreased 0.2% from November on a non-seasonally adjusted basis and increased 0.1% from the previous month on a seasonally-adjusted basis.
The core-CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, declined 0.2% from November on a non-seasonally adjusted basis while increasing 0.1% from the previous month on a seasonally-adjusted basis.
On an unadjusted basis, headline CPI increased 2.7% from its year ago levels while core CPI increased 1.8% year-over-year in December. This was the largest annual increase in headline consumer prices since October 2008 while core consumer prices recorded its largest year-over-year gain since May.
In December, energy prices increased just 0.2% from the previous month following a 4.1% increase in November. Food and beverages increased 0.2%. Excluding food and energy, transportation and apparel prices recorded the largest monthly gains with each rising 0.4%. Recreation costs fell 0.4% while housing costs remained flat. Education and communication costs increased 0.2% from last month while medical care increased 0.1%.
Employment costs increased 0.4% from July through September 2009, which was the same increase recorded during the previous quarter. The employment cost index increased only 1.5% during the past twelve months. The year-over-year increase in employment costs are lower than the 1.8% increase at the end of the second quarter and is the lowest annual increase since the government started tracking the data in 1982.
Definitions
and Importance for the Housing Market
By: Eric Alanis
The most widely used measure of inflation is the Consumer Price Index (CPI), which is a measure of the average change over time in the prices paid by urban consumers for a "market basket" of consumer goods and services. The CPI is sometimes viewed as an indicator of the effectiveness of government economic policy, but mostly provides information about price changes in the Nation's economy to government, business, labor, and other private citizens, and is used by them as a guide to make economic decisions. The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. The CPI-U over the last 12 months, unadjusted for seasonality is the measure we report. It represents all goods and services purchased for consumption and covers approximately 87% of the population. The change in prices is measured for eight major groups: food, housing, transportation, apparel, medical care, recreation, education and communication, and other goods and services. In our opinion, the core rate, which excludes volatile food and energy prices, is the best measure.
The Implicit GDP Price Deflator (IPD) is another excellent indicator of inflation. It is a nationwide indicator of the average increase in prices for all domestic personal consumption (not just consumer consumption), and is derived by dividing current price estimates of the GDP at purchase values (market prices) by constant price estimates. The CPI and IPD differ in three major ways. The CPI measures price changes for the same "market basket" of goods and services over time and the IPD measures average price changes for all domestic personal consumption on a national level. Second, the CPI is not revised after initial release, and the IPD does undergo revisions of initial figures. Finally, the IPD tends to measure minor price changes better than the CPI does. The IPD is reported quarterly. Therefore, historical numbers shown above are for the appropriate quarter.
The Employment Cost Index is a closely monitored indicator of inflation. It measures changes in compensation costs, which include wages, salaries and employee benefits. These figures actually understate the facts because they exclude trendier forms of compensation like hiring bonuses and stock options.
Inflation, and anticipated inflation, directly affects mortgage rates. Because many housing lenders these days sell large pools of mortgages to investors (known as mortgage-backed securities), one of the prime determinants of mortgage rates is the rate that investors require when they buy pools of mortgages from lenders. Because mortgage investors desire a certain premium over inflation, rising inflation (and even the expectation of rising inflation) will increase mortgage rates. When mortgage rates increase, a number of buyers are prevented from qualifying to buy the home they desire. Rising mortgage rates also ultimately inhibit home price appreciation because the ultimate determinant of home prices is what buyers can afford.
Our overall reported inflation is based on a straight average of all four inflation variables. While this calculation has no statistical relevance, it is meant to help the reader interpret all four variables.
For more information on the CPI and inflation, go to: http://www.bls.gov/cpi/
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