Market Update: What Does the Recent Rise in Inflation Mean?

Inflation is a word that makes people cringe because they know the buying power of their money will be reduced unless their incomes are adjusted. Inflation occurs for a variety of reasons and is measured by comparing the costs of goods and services from one period of time to another, typically year-to-year.

One of the more common causes of inflation is when the value of the dollar decreases compared to the values of other currencies. Another form of inflation is referred to as “cost-push” inflation, which occurs when demand for goods or services is significantly higher than the supply. For example, shortages of apartment homes result in increased rental rates, often substantially exceeding a monthly mortgage payment to buy a home.

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The most widely accepted method to measure inflation is the consumer price index (CPI). The CPI can be used to compare the cost of living or focused on specific products or services. The percentage change in CPI from one period to the next is referred to as CPI inflation.

For September, CPI inflation rose 0.3% with the greatest inflation in energy and food prices. In the housing industry, for the same period, housing inflation rose 0.4%. Housing inflation is the amount a homeowner would have to pay to rent a home of equal value, which means rental rates are rising. So, in the long run, purchasing a home today will be cheaper than renting and ensure that the purchasing power of your money for housing does not lose its value.

Now is a good time to buy a home or consider a refinance for a lower rate. For current interest rates or information about FHA loans and other conventional mortgages, please feel free to contact Elite Financial at 805-494-9930!