In the first graph, we can see that compared to each April since 2002, the CPI growth in April 2011 has almost matched CPI growth from the boom years of 2005-2008. Price increases in those years were partially countered by strong growth in employment and incomes, but at the present time, income growth has been flat in recent years, as discussed here.
The price increases are being largely driven by transportation costs, such as gasoline, which increased by 10.6 percent, year over year. Food costs also increased significantly, rising 3.4 percent.
Recent price increases will impact household calculations and attitudes on spending as many households conclude that discretionary spending will need to be scaled back in the face of increasing food and transportation costs. These price increases come in the face of continued lackluster performance in the labor markets as discussed here.
This in turn will have effects on home purchase activity as well. Note: In addition to the issue of disposable income is the issue of interest rates. Although the Federal Reserve denies that inflation is a serious issue at the moment, should it conclude that inflation does need to be addressed, the resulting increase in interest rates would also push down home purchase activity.
The second graph shows year-over-year changes in CPI for all months since 2002. If current trends continue, CPI growth will return to pre-recession levels in coming months.
