McClellan says Housing downturn is masking true U.S. inflation rate

Tom McClellan editor business insiderBusinessInsider reports that the housing bust’s resultant weak home prices are actually masking the true rate of inflation in the U.S.. Editor Tom McClellan stated “I’ll bet you did not know that housing makes up 42% 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%.  So whatever housing prices are doing has a big effect on the headline CPI number. “  When housing is excluded, the rate of inflation for everything else is 4.68%.  McClellan said “…the CPI-Housing growth rate follows the movements of lumber prices, with a lag time of about 18 months.  So the bottom for housing prices in 2010 was just the echo of the bottom in lumber prices in early 2009.  So “a higher input from housing prices joining with the already 4%+ 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 asserts.

(Photo credit, Tom McClellan:  Business Insider)

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