A recent article in The Economist discusses the outlook for inflation and interest rates in the United States. It points out that the core rate of inflation in February (1.3%) was at its lowest point in six years. This has allowed the Fed to state in their March 16 meeting that they would probably keep rates low (0-0.25%) for an extended period of time. Inflation and interest rates have a major influence on the capital markets and the U.S. dollar, so it behooves one to pay attention to their movements and what may cause them.
The single largest component of the core rate of inflation is housing costs. This big boy weighs in at over 40% of the core CPI. The proxy used for housing cost is the what someone would have to pay in order to rent the house he owns. Rents have declined a great deal during the economic downturn; so much so, that if they were excluded, the core CPI would have gone up rather than down over the period. Of course there are many other factors that influence core inflation, but the future of the dollar and the capital markets may well be largely in the hands of your landlord.
