Wikinvest Wire

The Economist notices inflation

Sunday, May 25, 2008

Sometimes it seems that the graphic artists at The Economist are a wee bit sharper than the magazine's writing staff, particularly in the area of, uh, economics. Take note of the guy with the huge nose in the middle of the cover above who complains, "It seems the price of everything is going up!!!"

There are two stories in the current issue about inflation, however, as might be expected when the authors are economists, you get the standard take on inflation in the West in the cover story Inflation's back:

By slashing interest rates as inflation has climbed, has the Fed sowed the seeds of a new inflationary era? That case looks hard to prove in the rich world. Inflation rates of 3.9% in America and 3.3% in the euro area are far higher than central banks want, and inflation expectations are rising. If growth in the euro area remains robust, the ECB should certainly worry more about inflation. Yet so far there is little sign that higher food and oil prices are pushing up other prices in the rich economies.
Yes, inflation at three or four percent pales in comparison to what we saw back in the 1970s but the way the inflation number is calculated also pales in comparison.

The other report An old enemy rears its head deals with inflation in emerging economies and while I haven't gotten around to reading that one yet, I'll add to this post sometime later today if anything interesting appears.

That's one of the best magazine covers in quite some time.


This week's cartoon:
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little larry sellers said...

I used to see the Economist as a viable alternative to the dreck we see written in America, but unfortunately they too have succumbed to drinking the Kool-Aid. Writers at the Economist often churn out the same dreck as the American print media and talking heads, except with a UK/global twist.

This week's edition is typical. What's more important news, the FARC guerrilla struggle in Colombia (which has been going on as long as I can remember) or the end of the American dream and life as we know it? Apparently getting in a few jabs at Chavez is more important after all.

Troy said...

It's not inflation until treasuries are pulling in 10% pa.

If wages don't go up, I do wonder what's going to snap to realign the system.

Rents perhaps, but rents close to work aren't going to go down at all since there will be positive price pressure.

Education, transportation, health care, rents -- every "need" good is going up. If wages don't, then the "want" goods have to go down.

Aaron Krowne said...

Troy, I don't know if you're serious, but that "it's not inflation until Treasuries reflect it" argument really does steam me up. Treasuries are so far from a free market I'd call them more politics than market. The only economic actors that regularly invest in Treasuries don't actually invest them, they trade, based on rate change directionality telegraphed from the Fed.

Of course, since Treasuries represent "risk-free return" they impact (infect?) the entire economy -- for better or worse.

Anonymous said...

Friday, May. 23, 2008
Buyers back in home market
As home prices continue to tumble, Merced County is experiencing a sales boom
SEARCHABLE DATABASE: Northern San Joaquin Valley home sales Merced County home prices continued their free fall in April, with the median price dropping to $186,000 -- a level not seen since 2003, according to real estate tracking firm DataQuick Information Systems.

A year ago April, Merced's median price stood at $316,000.

The news comes wrapped in a silver lining: Housing in Merced is more affordable than it's been in years, and Realtors saw sales skyrocket last month.

The plummeting prices put Merced at the top of a nationwide list of cities with the biggest price declines between the first quarters of 2007 and 2008. Merced's home prices tumbled 24.7 percent during that period, according to the Office of Federal Housing Enterprise Oversight.

Realtor Andy Krotik said a record number of foreclosures in Merced are pushing prices down. "Normally, when demand goes up, it would dictate that prices go up, but we're experiencing a tsunami of foreclosures that are keeping the prices at bay," said Krotik.

Last month, a record 412 Merced homeowners lost their homes to foreclosure, according to RealtyTrac. The city saw the highest foreclosure rate in the nation, with one in every 66 households receiving a foreclosure-related filing. Foreclosure-related filings include notices of default, notices that a house will be sold at a public auction and notices that a bank has repossessed a house.

Merced's prices haven't dropped this low since June 2003, when the median price clocked in at $185,000, according to DataQuick.

Downsized prices are luring both first-time buyers and investors back into the market, said Krotik.

That activity has pushed sales up, with 324 houses trading hands in April, according to DataQuick. That's the biggest single-month sales figure Merced has seen since late 2006. In the first three months of this year combined, 513 houses were sold.

Krotik estimated that about 10 percent of home sales are being made to investors returning to Merced because "rentals pencil" -- in other words, the lower prices mean investors can buy a house, then cover their mortgage payments by renting it out.

Realtor Carol Schrole with Century 21 Salvadori Realty said while she's seen multiple offers on foreclosed properties, individual homeowners are struggling to sell.

"It's difficult for a homeowner to compete with a bank," said Schrole. Her advice to sellers: "If you don't need to sell, you need to sit tight."

For buyers, the picture is rosier. About 61 percent of Merced households could afford to buy an entry-level home in the first quarter, up from 46 percent a year ago, according to the California Association of Realtors.

CAR estimates the entry-level home price in Merced as $177,360. With a 10 percent down payment and adjustable interest rate of 5.65 percent, the monthly payment for such a house would be $1,130. To qualify for that purchase, a family would need an annual income of $33,760.

Tim said...

It's funny that a house in California for $177K sounds ridiculously cheap.

tj & the bear said...

Anchoring bias. The median SFV home was around $165K in 1996.

I remember moving to SoCal back in the late 80's and thinking prices were absolutely insane *then*.

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