Despite the fears felt by many who assumed that inflation would roar back to life once the government started its massive deficit spending, prices have remained under control for the past couple of years. At the same time, housing prices have been dropping, or stagnant at best. That has caused some people to wonder if the low rates of inflation have been unduly influenced by the crash of the real estate market.
Some researchers at the Fed have looked into that very question, and they've found that housing is not distorting the overall inflation numbers to any great degree. They broke down consumer spending into 50 different categories, and found that inflation has slowed in most of them, including jewelry, transportation, and electronics. There were a few categories in which prices had risen, such as used cars, but those were a decided minority.
The researchers also recalculated their preferred inflation measure without housing costs included. With housing, the February inflation rate was a 1.3 percent increase over the previous year. Taking out the costs of renting or owning a home, the research indicates that rate would jump to 1.55 percent.
In other words, falling housing prices have kept the inflation rate lower than it would otherwise be. But even aside from housing, inflation is still pretty low.
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