Tuesday , 21 May 2024

Higher Lumber Costs Today = Higher Housing Costs Tomorrow = Higher Inflation in 2012/13

Housing makes up 42% of the Consumer Price Index (CPI) with the rest of it – food, energy, clothing, recreation, education, transportation, toys, cosmetics, etc. –  making up the other 58%. [The current] softness of housing prices is artificially suppressing the growth of the CPI inflation rate [but with the coming increase in lumber costs that is about to change. Let me explain] Words: 772

So says Tom McClellan (www.mcoscillator.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. 

McClellan goes on to say, in part:

Most people have heard about the CPI variant that excludes food and energy but not many people outside the economics community know that the Bureau of Labor Statistics also publishes a long list of alternate permutations of CPI calculations, including or excluding various components.  This week’s chart shows a comparison of the CPI-Housing growth rate versus “all items less shelter”, which is that other 58% of the CPI calculation I mentioned above.  When we exclude the contribution of the housing price data, we can see that the inflation rate for everything else is already up to 4.68% and this high inflation rate is occurring at a time when the yield on the 30-year T-Bond is just 3.51%, and 10-year T-Notes are yielding just 2.15%!


The chart [above] also reveals that the CPI-Housing growth rate is already working on catching up to where the inflation rate has gone for everything else. 

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Higher Lumber Costs = Higher Housing Costs = Higher Inflation

If the following chart is correct, the future should bring even higher housing costs.


The chart above shows that 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.  The current uptrend for the growth rate of CPI-Housing is following the path of an up move in lumber prices that occurred 18 months before.  Lumber prices peaked in December 2010, which suggests that the CPI-Housing numbers should continue rising until around June 2012…


[The higher input from housing prices joining with the already 4%+ inflation everywhere else, [however,] is going to make it really hard for the Fed to live up to its promise to keep interest rates low until 2013.


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