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CWRU Economics professor says housing costs doing the most damage during this inflationary period

Published: Jun. 23, 2022 at 7:23 PM EDT
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CLEVELAND, Ohio (WOIO) -When it comes to something as big as the United States economy nothing is ever really simple, and that includes the dynamics of the current inflationary period U.S. consumers are dealing with as they try and drive back and forth to work and feed their families.

Even so, Case Western Reserve University Economics Professor Jonathan Ernest, suggests that the driving force behind inflation right now is supply and demand, as consumers are spending, after the pandemic, and even as prices have surged.

“It’s also potentially overheating the economy to where we’re demanding more goods than we’ve been able to produce, in the long run, because we haven’t had it set in that we don’t really want to pay these super high prices,” he said.

So as we spend the Federal Reserve continues to raise interest rates to curb demand, but not so much that it slows the economy to the point of driving into a recession.

It’s a delicate balancing act, Ernest said.

For now, we are left with sky-high prices and when we think of inflation most of us simply look at high fuel prices, or the cost of a trip to the grocery store to feed our families.

But Ernest said the real pain of inflation comes with housing costs and those do not affect everyone equally.

“People are affected by this in very different ways, and with inflation, we tend to get some winners and some losers,” Ernest said, “A lot of that is driven by what we estimated inflation to be what actual inflation is.”

The people who have been hit hardest by inflation are renters, new home buyers, and those with adjustable rate mortgages, Ernest said, as opposed to long-time homeowners with fixed rate mortgages.

“As housing get more expensive, even if housing prices aren’t increasing at 50 percent, year over year like something we’ve seen with fuel, it’s still driving up costs, because it’s still a large portion of what people spend their budgets on,” he said.

Food and gas prices are certainly going to have an effect on our budgets but for most people those two items added together still don’t come close to the amount we budget for housing costs.

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