Inflation, Producer Price Index | Bedford Hills Real Estate

- April 24, 2012

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses inflation and the producer price index.

Inflation may not become a problem. Producer prices show a decelerating trend with a price increase of 2.8 percent from one year ago, which is notably lower than the 6 to 8 percent rise over most of last year. The producer prices at both the intermediate and crude state of production also showed deceleration.

Producer prices are not consumer prices but they generally have an impact over time, so a retreat in inflation pressure is overall good news. If inflation decelerates further then the monetary policy does not have to be tightened and can continue to remain loose for an extended time period. Also bond investors would not need additional premium in terms of higher interest rates to compensate for any future loss in the purchasing power of money.

As everyone knows, gasoline prices and food prices have been clearly eating into consumers’ pocketbooks this year. But a slower pace in producer prices may portend no further acceleration to consumer prices. This does not mean consumers will be better off. It just means that the $4 per gallon at the gas pump, for example, could indeed stay with us, but it is now much less likely to reach a higher price of $5 per gallon any time soon.

Because of some improvement in home sales and the anticipation of about a 25 percent jump in housing starts in each of the next two years, log and timber prices have been kicking higher.

Separately, the number of people filing for unemployment checks for the first time rose in the past week, reversing the steadily declining trend. A rise to 380,000 in the past week is not anything alarming. The fact that it is less than 400,000 per week would be consistent with about 2 million net new job creations this year. Even in the best of economic times, there are always people who get fired or get laid-off each week and file for unemployed checks. Still, faster job recovery is needed to not only bring down the number of first-time filers, but bring measurably down the number of people who have been unemployed for more than half a year, which still remains at historically high levels.