U.S. Inflation Fears Level Market

July 14, 2009
U.S. Inflation Fears Level Market
Economic News and Information for Consumers

The Commerce reported today that wholesale inflation jumped 1.8% in June, which is almost double what the market thought was going to happen.  After taking out food and fuel the rate is .5%, also well above what the street had wanted.

Why the market is surprised is well, surprising.  The government has taken actions to increase spending more than  all previous administrations combined.   Yesterday the U.S. surpassed the $1 Trillion debt mark, which is just a number but still a significant one because it has never happened before and is poised to keep rising.

Why is inflation important?  Everything gets more expensive, which can stall even the best of economic recoveries.  Furthermore, the only way out of inflation is to have another recession and we definitely don’t need another one of those.

But even more worrisome is the overall impact inflation will have on mortgage rates.  Currently 30 year rates are just under 5% for many banks but this can easily skyrocket like rates did in the ’70s.  If you think rates are high when they reach 6% just wait until they double that mark because it can definitely happen with the spending we’ve had going on in the government.

If you’re in the market to buy a home, you’ll need to balance rates, price and government incentives for first-time home buyers.  Remember the $8000 tax credit expires at the end of the year.