It will take more than a recovery in housing to reignite inflation in the U.S. economy, a state of play that argues for the continued threat of deflation and a Federal Reserve that is pinned to the mat, unable, even if willing, to raise interest rates.
The strong disinflationary forces in the United States are deeper and wider than a simple, if bloody, aftermath of a housing bubble.
Many took encouragement from a report by Reis Inc that apartment rents in the United States rose in the first quarter for the first time in a year and a half even as the apartment vacancy rate stayed at an all-time high of 8 percent. Besides indicating a possible recovery in jobs and household formation, which tracks jobs, there is a hope that stabilization in housing values and rents would remove a powerful disinflationary force.
However, the downward trend in core inflation, while influenced by weakness from housing, is far broader.
“A close examination of recent inflation data shows that the weakness in housing costs is representative of a broad pattern of subdued price increases across most consumption goods and services and is not distorting the broad downward trend in core inflation measures,” Federal Reserve staffers Bart Hobijn, Stefano Eusepi and Andrea Tambalotti wrote in the Federal Reserve Bank of San Francisco Economic Letter.