Inflation Watch

• Inflation (price change) is important for REALTORS® because changes in prices in the economy can lead to shifts in interest rate policy by the Federal Reserve Bank.

• During the current financial crisis, fears of deflation were present in news reports (deflation can lead downward spiral of prices that destroy an economy similar to what happened in the Great Depression)

• While talk of deflation is less, some are fearing that inflation in the coming years may lead to another unpleasant economic condition called stagflation (high unemployment and high inflation) that makes it difficult for the central bank to combat inflation due fear of further job market deterioration.

Inflation Watch November 30th,2010

• The consumer and producer price indices (CPI and PPI) appear to be pretty tame in recent months.

• Headline and core inflation is moderate, underlying PPI Crude

• Oil prices are steady• Gold, other metals and commodities are moving up

strongly. • Dollar is weakening. A weaker dollar makes imported

goods more expensive and adds to inflationary pressure

Indicator Source and definition Change from previous month

Change from previous year

Concern?

Consumer Price Index (CPI)

BLS, Price change of consumer goods and services

+ 0.2% + 1.2% No

CPI Core BLS, CPI less food and energy unchanged + 0.6% No

CPI Housing (owners’ equivalent rent)

BLS, CPI housing component (primary residence)

+ 0.1% unchanged No

Producer Price Index (PPI)

BLS, Price changes domestic producers receive for their output

+ 0.4% + 4.3% No

PPI Core BLS, PPI less food and energy - 0.6% + 1.4% No

PPI Crude Materials BLS, PPI crude / raw materials + 4.3% + 17.1% Yes

PPI Residential Construction

BLS, PPI BRES + 0.4 + 4.2% Maybe

Gold WSJ, Price per ounce of gold + 5.0% + 27.5% Yes

West Texas Crude Oil WSJ, Price per barrel of oil - 8.8% + 8.0% Maybe

Dollar vs. Major Currencies

FRB, Trade-weighted value of dollar vs. major currencies

- 3.5% - 0.6% Maybe

Construction Cost Index

Census, constant quality, new single family homes under construction

+ 0.6% - 0.5% No

Looking at the CPI in More Depth

Indicator Change from previous month

Change from previous year

Concern?

Consumer Price Index (CPI) + 0.2% + 1.2% No

Food at home Unchanged + 1.4% No

Meats, poultry, fish and eggs + 0.6% + 5.7 Yes

Housing fuels and utilities + 0.4% + 2.4% No

Household furnishings & operation

Unchanged - 2.5% No

Transportation (Gasoline) + 4.6% + 9.5% Yes

Medical care + 0.2% + 3.6% Maybe

Hospital and related services + 0.5% + 7.5% Yes

Education Unchanged + 3.7% Maybe

Water, sewer, and trash collection services

+ 0.2% + 5.3% Maybe

Personal Computers and peripheral equipment

- 0.2% - 3.6% No

Wireless telephone services - 0.4% - 3.4% No

Televisions - 1.5% - 18.8% No

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 11/29/10

6

4

2

0

-2

PPI: Crude Materials for Further Processing% Change - Year to Year SA, 1982=100

PPI: Finished Goods% Change - Year to Year SA, 1982=100

1009080706Source: Bureau of Labor Statistics 11/29/10

50

25

0

-25

-50

Cash Price: Gold Bullion, London Commodity Price, PM Fix

US$/troy Oz

1009080706Source: Wall Street Journal 11/29/10

1400

1200

1000

800

600

400

Domestic Spot Oil Price: West Texas Intermediate

$/Barrel

1009080706Source: Wall Street Journal 11/29/10

140

120

100

80

60

40

20

Nominal Trade-Weighted Exch Value of US$ vs Major Currencies

Mar-73=100

1009080706Source: Federal Reserve Board 11/29/10

88

84

80

76

72

68

NAR Median Sales Price: Total Existing Homes, United States2000=100

Houses under Construction: Fixed-Weighted Price Index2000=100

0403020100Sources: National Association of Realtors, Census Bureau 11/29/10

150

140

130

120

110

100

90

150

140

130

120

110

100

90