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The consumer price index, personal consumption expenditures, and producer price index point to cooling inflation, but no one can say for certain what the economy will do next. High inflation rates have a devastating effect on economies and the people within them, so a slower rate of inflation over the next few months and years could make everyone breathe a little easier. However, with so many factors up in the air — the U.S. presidential election and ongoing geopolitical conflicts, among others … [Read More...]

July 2024 Annual Inflation Falls Again

July Annual inflation was Down for the 4th month in a row. Economists were predicting 3% Annual Inflation but the BLS is reporting 2.9%. But since we calculate it to two decimal places it is actually 2.89%.

Annual Inflation fell from 2.97% to 2.89%
CPI Index rose from 314.175 to 314.540
Monthly Inflation for June was 0.03% and July was 0.12%
Next release Sept 11^th 2024

What Causes Stagflation?

Increases in money supply set in motion an exchange of nothing for something. This diverts real savings from wealth generators to non-wealth generators. Consequently, this weakens the wealth-generation process and in turn the pace of economic activity. Now, when money enters goods markets it means that we have more money per good. This means that the price of goods has risen.

Hence, what we have here is the increase in goods prices and a weakening in economic growth. This is what stagflation is all about. We suggest that the outcome of the monetary pumping is always stagflation. It is not always visible, though. As the pool of real savings comes under pressure, the phenomenon of stagflation becomes more visible.

Inflation Causes Inequality

Many claim the problem with fractional reserve banking is that it loans money into existence. It does, but under normal circumstances, the money created by commercial banks disappears when loans are repaid or defaulted on, which therefore doesn’t create a permanent inflation of the money supply. Government intervention, however, converts temporary money into permanent money through bailouts like the Troubled Asset Relief Program. They purchase loans that would have been defaulted on, preventing the evaporation of credit. When banks hold loans that are at risk of default, they face having to write them off, which would remove this part of the money supply. Bailouts turn such disappearing credit into permanent money, in effect giving banks free money.

Navigating High Inflation: Should You Buy, Sell, or Hold Off on Real Estate?

It’s no secret that inflation is high nowadays. While the rate of inflation is significantly lower today than it was in 2022, it’s still sitting at about 3%; higher than the FED’s stated goal of 2%. Although, FED Chairman Jerome Powell has hinted that he now considers the range of 2% to 3% acceptable so he might consider lowering interest rates. But currently interest rates are considerably higher than they have been over the last decade.

For homebuyers, real estate investors, and brokers inflation is encouraging when compared to 2022’s record of 9.1% but it is still concerning. Inflation affects various aspects of the real estate industry, from spiking materials costs to a shift toward rentals. A potential oncoming recession also adds to real estate investors’ concerns, as the resultant pricing fluctuations and drops in demand put them in a riskier position than the status quo.

Annual Inflation Falls Below 3%

June’s Annual inflation was down causing some surprise in the market. The Cleveland FED was predicting 3.12% annual inflation. But inflation came in at only 2.97%. Our long-time subscribers know that January through May is the highest inflationary period, so we were expecting some sort of decline in June. But even we underestimated the extent of the decline (although our low projection was lower than the Cleveland FED).

Without looking at inflation-adjusted prices it is difficult to see where gasoline prices actually stand. Back in 1918 gasoline was $0.25 a gallon and by 1932 prices had fallen to 18 cents a gallon! But as we all know over the last 100 years the purchasing power of the dollar has fallen drastically so in order to get the true picture we can’t just say that the lowest price of gas was 18 cents per gallon, we need to adjust the price for inflation. When adjusting for inflation there are two prices… the first is called the “nominal price” and that is the actual price you would have paid for gas at the pump. The key price though is the inflation-adjusted price which calculates what the price would have been if we were spending current dollars on a specific date. In this case, we are basing our calculations on the value of a dollar in January 2020.

Inflation Adjusted Real Estate Prices- Lets take a look at the idea that housing prices always go up. Of course, each neighborhood is different, so some neighborhoods might be going down while a few miles away housing prices are skyrocketing but by looking at the nationwide average we can get a better picture of the overall trend. The St. Louis Federal Reserve publishes the following chart that shows the S&P/Case Shiller National Home Price Index and by adjusting those prices for inflation we can get a better picture of how real estate prices really act. Is a home a good investment or not?

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Optimize Your Finances as Inflation Cools

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July 2024 Annual Inflation Falls Again

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Annual Inflation Falls Below 3%

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