Headline Inflation for this month is around 8.5%, which is down from last month's 9.1%. This change is heading in the right direction, however there are multiple sources that influence this number. The drop in inflation we are seeing currently is likely primarily influenced by changing oil and gas prices. While still high, gas prices have fallen from $5.11 last month to around $4.01, according to the Energy Information Administration's latest statistics. This decrease in gas prices has definitely affected the overall Inflation Rate, however other categories such as food inflation remain stubbornly high.
So what if we look at Core Inflation, which excludes the volatile gas and food markets?
According to Marcus and Millichap Research Services, Core Inflation held steady at around 5.9% in July, but the rate is still on the downward swing from the 6.4% high in March. This rate, while high, at least means that the conditions are not currently getting worse.
Over the next several months experts expect to see inflation slowly come down. This change is primarily anticipated due to Global Supply Chains finally beginning to stabilize. This is a simple case of Supply & Demand. Prices have been on the rise because there is more Demand than there is Supply. Yet, with Global Supply Chains balancing, there is an inevitable supply increase coming.
While we await this change, the Federal Reserve will likely continue to increase Interest Rates in an attempt combat the inflation. This tactic of raising Borrowing Costs is implemented to drive down demand. However, according to the Office of Financial Research, the total amount of cash in savings and money market accounts is $23 trillion. This means that many people will opt for using the cash they have on hand, rather than borrowing money to buy things. This makes raising interest rates less effective.
What does this mean for the Real Estate sector?
Market experts generally agree that due to ever-increasing Space Demand, the Real Estate sector should be relatively unaffected by the impact of Inflation. With constant demand for housing and supply chains that are finally levelling out, the construction and real estate market should see some positive changes in the coming months.