Tags: Rising | home | prices | inflation

WSJ: The Downside of Rising Home Prices: Inflation

By    |   Wednesday, 15 Aug 2012 12:08 PM

Home prices are on the upswing, which many experts tout as a good thing for the economy.

But there is a fly in the ointment: inflation, The Wall Street Journal reports. Increasing home prices can easily lead to a general rise in prices.

While the Consumer Price Index (CPI) gained 1.4 percent in the year through July, the shelter category far surpassed that number, with a 2.1 percent increase.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

The housing trend has changed in a hurry. Shelter costs were "outright deflating in 2010 — it's an absolutely enormous swing over that time period," Tom Porcelli, chief U.S. economist at RBC Capital Markets, told The Journal.

To be sure, given the economy’s persistent weakness — growth totaled only 1.5 percent in the second quarter — not many experts anticipate any overall inflationary pressure in the near term.

Porcelli is of that view, as long as energy prices don’t jump. “That factor [housing] alone is not enough to usher in an inflationary impulse," he said.

But long-term risks remain.

Meanwhile, the U.S. drought won’t have much impact on inflation in the short term either, experts say.

“It will take a while to feel the full effect,” Diane Swonk, chief economist at Mesirow Financial, told CNBC. “It’s coming, and it’s going to be in dairy products, eggs, meat. People are going to be making tradeoffs in the grocery store, but it won’t show up in the CPI [quickly].”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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2012-08-15
Wednesday, 15 Aug 2012 12:08 PM
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