I should have given you feedback on the Consumer Price Index the morning before,

I should have given you feedback on the Consumer Price Index the morning before, but I couldn’t write it down because of the morning seminar. It’s a little late, but I’ll write it down. First of all, the Consumer Price Index came out as a surprise. Market participants did not seem to put much weight on the slight over market expectations. This is because the rise of super core inflation, which the Fed said it was paying attention to, or price indicators related to the service industry excluding housing costs and commodity prices, slowed slightly (still high.. T.T).

It doesn’t matter if it’s a little high… Don’t worry, go~~~~~~~~~~~~~~~.
And the Fed is looking at prices in three parts: commodity, housing, and service prices. Prices in the commodity sector are already fairly stable. And Powell, when he mentioned disinflation in January of last year, said that prices in the commodity sector came down quickly. It’s not January of this year, it’s January of last year. That means 14 months have already passed. And the market cheered when he said inflation at the FOMC in January of 23rd that inflation is almost over. At that time, Powell said that the commodity sector is good, and the housing sector is a matter of time, and it’s going to come down with a lag. But when service prices are still high, it’s not going to be as easy as you think because it’s related to wages.

There’s a Fed report on why prices in the commodity sector fell. It analyzes that China’s deflationary pressure has significantly helped lower commodity prices. There’s one more thing here. International oil prices have stabilized. The release of strategic oil reserves in the United States and the increase in oil production, which soared to $140 per barrel in the first half of 2022, combined to push the international oil price below $70. The stability of commodity-related prices is actually more due to the expansion of supply than to demand-side factors.

By the way, if the economy on the Chinese side recovers or the inflationary pressure in China is slightly higher than now, what will happen? What will happen if the Chinese yuan, which had been causing instability as it rose to 7.3 yuan per dollar, stabilized at 7.1 yuan, and the dollar weakened in reverse? A weak dollar refers to an increase in import prices. In a way, it can be interpreted that the increased deflationary pressure caused by China’s economic slowdown has given Fed monetary policy breathing space while stabilizing the U.S. commodity prices. And one more thing is that the output of U.S. shale companies has decreased considerably recently. And it’s unreasonable that the number of new oil rigs drilling for oil has not increased in the past year. As time goes by, the amount of oil extracted from the same oil field is limited, and the U.S. oil production may be limited. It plays a role in restraining the decline in commodity prices. For reference, in March last year, international oil prices were around 70 dollars per barrel. Now, one year later, they are around 80 dollars per barrel. I think the inflationary pressure on the energy side may be increasing again on the previous year’s basis.

The downward pressure on the commodity side, or on the energy side, may be weakening a little bit. Then we need to look at the housing sector and the services sector. The U.S. housing market is still hot. It’s past the highs. And it’s showing that prices are skyrocketing regardless of the current high interest rates.

With the price of high-end homes soaring, the stock price of high-end home builders such as Tolfradus is also quite good. Because high-end homes are good, builders will increase the supply of high-end homes with margin. For high-end homes, supply may increase in the future, but for relatively low-end homes, the supply shortage is not easily resolved. Mortgage interest burdens increase, inflationary pressures increase, reducing disposable income. Still, the burden of higher housing prices makes people want to buy homes. Wouldn’t that lead to focus on low-end homes rather than expensive high-end homes? Then this could happen.

“Low-priced houses are the main target of purchase due to high U.S. housing prices. High interest rates have combined, making it difficult for consumers to afford expensive houses. According to a report released by the U.S. online real estate brokerage Redfin on the 14th (local time), a total of 26.1 percent of residential real estate sales in the fourth quarter of last year were purchased. It hit an all-time high. High-priced houses sold 15.9 percent.” (Original)

“Investors are attracted to low-priced homes when housing prices and mortgage rates continue to rise,” Redfin said. “If housing affordability is limited as it is now, the tangible increase in low-priced homes could be even greater.” Low-priced homes accounted for 46.5 percent of all home transactions in the fourth quarter of last year. High-priced homes accounted for 28.8 percent. The number of U.S. home sales during the period was 46,419. It was down 10.5 percent from the previous year.

“If the Federal Reserve cuts interest rates later this year as expected, more investors will jump into the housing market,” Redfin said. (Yonhap Infomax, 24.2.16)

Rising prices of low-end homes can have a significant negative impact on people’s housing. Failure to buy a home will result in a rental home, which increases the burden of rental fees. And even if you own your own home… the deemed rent (OER) that you have to pay when you take it out and rent it… It doesn’t come down easily amid the anxiety that housing prices are continuing to rise. Yes.. If housing prices are too high, inflation in the housing sector may not be easy to stabilize either. The last paragraph of the cited article states that cutting interest rates will drive more investors into the housing market. If interest rates stimulate the housing market… Could it become an inflation boomerang again? I’ll write down this in a little bit more detail over the weekend. Here’s an essay line. Thank you.