Last week we noted that a number of key economic data points were due this past week. Tuesday’s better than expected Retail Sales report, combined with a slowing in the Producer Price Index, provided the markets with a lift. We gave the gains back on Wednesday following the CPI and a sharper than expected slowdown in industrial production.
While conducting our research we come across some very fascinating items, and one worth discussing is how falling housing prices are actually contributing to the rise in the core inflation rate. According to the Case-Schiller index, housing prices fell at an annualized rate of 4.2% in the first quarter of 2011, and yet the “shelter” component of the Consumer Price Index rose at an annualized rate of 1.4% over the same period. This perversity is due to the fact that the accelerated rate of foreclosures has pushed more and more people into a limited supply of rental housing units. Limited supply plus increased demand equals inflating prices. It seems likely that this trend will continue for a while. Indeed, Capital Economics predicts that the US rental market will be the best performing housing sector for the next five years, with rental prices rising from 2% to 4% per year over that time period.
If you would like to see a bit more on renting versus buying around the country, visit the Trulia website:
Next week we will be watching Tuesday’s Existing Home Sales report, Wednesday’s Fed FOMC announcement, Thursday’s Jobless Claims and New Home Sales reports, and Friday’s reports on Durable Goods Orders and GDP.