The positive or negative perception of inflation is affected by political decisions and whether the effects are felt immediately or down the road. These decisions will have an impact on jobs, how much you pay in taxes, and who is in control at the Fed, which has authority over mortgage rates and the 10-year treasuries that drive them. The cost of the 10-year note has been progressively growing, and with the Fed just announcing that it will hike short-term interest rates for member banks, those institutions will raise rates on consumer loans as well. Inflation usually increases by about two percent per year, which is not as noticeable when compared to the six to seven percent we are currently experiencing. This increase is significant since the cost of housing and food are directly affected by inflation, and having to pay more for a mortgage leaves less money to spend on basics. Discretionary items like cigarettes and alcohol, as well as essentials like gas, are just a few of the numerous products vulnerable to growing negative inflationary pressure. With the gas industry underperforming, consumers are feeling the pinch at the pump.

On the positive side, as discussed last week, the higher wages now being paid to employees is a type of inflation that is of a more favorable and permanent kind. Stock portfolios have also reaped the benefit of inflation, as the stock market has risen exponentially in the last several years. For example, the stock market was at 7,300 in 2008 and has now hit 35,000, so someone keeping equities from that time to the present might potentially experience a 400 percent return in their portfolio. In the housing market, inflation has provided homeowners with a 30-50 percent increase in the value of their homes over the last three years, but how long can this continue? What is the outlook for inflation’s impact on the housing market in the coming months? The conventional wisdom is that when interest rates rise, demand falls, and more properties become accessible to prospective home seekers. Will that be the time to buy? This week, Jeff’s guests include:

– Laurie Preedge from Spring EQ discusses home equity and HELOCs.

– Cindy Matthews of Econdo.com shares the challenges of selling real estate in Southern California during this period of tight inventory.