Tags: McClellan | housing | inflation

McClellan: Housing Hides Real Inflation Rate

Sunday, 04 Sep 2011 06:06 PM

Inflation rates would be much higher if housing prices weren't in the dumps, says Tom McClellan, editor of the McClellan Report. 

"Housing makes up 42 percent of the Consumer Price Index (CPI). All the rest of it, food, energy, clothing, recreation, education, transportation, toys, cosmetics, etc. makes up the other 58 percent. So whatever housing prices are doing has a big effect on the headline CPI number," says McClellan, according to Business Insider
.

On a seasonally adjusted basis, official inflation rates increased 0.5 percent in July after falling 0.2 percent in June, and over the last 12 months, the all-items index increased 3.6 percent.

However, if housing prices are yanked out of the equation, the items that make up the rest of the index — that remaining 58 percent — jump up to 4.68 percent, says McClellan.

 "A higher input from housing prices joining with the already 4 percent-plus inflation everywhere else is going to make it really hard for the Fed to live up to its promise to keep interest rates low until 2013," McClellan says.

 The Federal Reserve has cut rates to near zero and has rolled out other expansionary monetary policies in an effort to stimulate economic growth and hiring.

Still, growth remains stagnant and unemployment rates remain elevated.

Now market watchers are expecting the Fed to try something new, such as sell short-term bonds and buy up longer-term securities on the same day in such a fashion to keep long-term interest rates low and fuel more growth.

"I just don’t think the Fed will sit idly as momentum fizzles in this recovery," says Dana Saporta, a United States economist at Credit Suisse, according to the New York Times.

"We fully expect some more action from the committee later this month."

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Sunday, 04 Sep 2011 06:06 PM
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