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Good News Friday: What Inflation?
Inflation remained quiet in January despite the extra liquidity sloshing around the credit markets and the large deficits being racked up by the federal government. Over the past 12 months, the consumer price index increased by 2.7 percent. Core inflation, which excludes food and energy and is a better measure of underlying trends because it is less volatile, rose by just 1.5 percent, in the middle of the Federal Reserve’s informal comfort zone of 1 to 2 percent. On a monthly basis, core inflation registered a decline of 0.1 percent in January, its first decline since December 1982.
While it may become a problem in a few years, inflation should remain tame in the next couple of years at least, which means interest rates will rise only gradually as the Federal Reserve begins to raise its benchmark federal funds rate, perhaps late this year or early in 2011. Low interest rates should make real estate more attractive to investors (assuming they can get credit). A low-interest-rate environment also helps the Treasury Department as it issues bonds to finance the deficit, keeping debt service payments relatively lower.
—Bob Bach, Grubb & Ellis Senior Vice President, Chief Economist
