How Does The Rising Rate Of Inflation Bring Down The Prices Of Houses Essay

How Does The Rising Rate Of Inflation Bring Down The Prices Of Houses In The United States - Essay Example Since two-thirds of households in the US or even more have possession of the houses that they reside in, the weight of Owner–Equivalent Rent in the CPI is significant; it accounts for around 23.8% of headline CPI and around 30.8% of the traditional core CPI which excludes energy and food. The rents languished due to an increase in the sale price of houses in the recent years. Since the year of 2000, it can be found that OER has increased approximately 26% while the government’s price index of existing homes has increased 80%. This indicates that the sale prices of existing homes and new homes rose by 5% or even more per year faster than rents since the twist of the millennium (Cecchetti, â€Å"Housing in Inflation Measurement†). Consumer Price Index Levels (1950-2003): Source: (Cedar Spring Software, Inc., â€Å"Price Inflation†). The above chart indicates how the effects of continuous inflation build up over the years. It consists of the index values of C PI for the month of December of each year. The value of index of 180 indicates that prices have risen 80% which is measured from a â€Å"base of 100†. With the help of index values, one can determine that goods and services which cost $3,000 at the end of the year 1992 will cost $3,897.00 at the end of the year 2003. The supposed household cannot wait for the inflation to be at a normal level. They must make sure that their interest and income keep pace with the long-term inflation or else they would become poor (Cedar Spring Software, Inc., â€Å"Price Inflation†). Percent Changes in Inflation (1950-2003): Source: (Cedar Spring Software, Inc., â€Å"Price Inflation†). The above chart depicts changes in the inflation rate and not the actual price changes. A line that trends downward which is above... The researcher of this essay focuses on the issue of the connections between the inflation and housing in the United States. The researcher states that although inflation occurs regularly in the economic system, it becomes a matter of concern when it reaches at higher levels. The rate of inflation, that is discussed and analyzed in the essay provides the measure of price changes, which occur for many goods and services. When it comes to individual goods, the changes in the prices vary greatly. The prices of number of goods such as gasoline, health care, housing and automobiles have significantly increased during the last decades. On the other hand, the prices of the commodities such as computing power and calculators have decreased. Different methods are used to measure the inflation rate, but the most common approach to measure inflation in the United States is Consumer Price Index (CPI) which includes the steps, described in the essay. The researcher then focuses on the calculating of the real inflation rates in the United States and provides graphics and charts on the topic of Percent Changes in Inflation and Consumer Price Index Levels. It is then concluded by the researcher that the stock market and the housing market had gone down, thereby reducing the supply of money and creating a crisis of liquidity, thus sinking the United States into a deflationary period where the prices were in fact lower than 2008, reaching a deflationary short of -2.1% in the month of July of the year 2009.