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Brian Jacobsen

Inflation and housing: More Fed easing coming soon?

AdvantageVoice® Blog—5-16-13
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

The Consumer Price Index (CPI) declined 0.4% in April. Year-on-year, the CPI is up 1.1%. Back-to-back months of declines in gasoline prices pushed the headline number lower. Over the past 12 months, food prices are up 1.5% and gasoline prices are down 8.3%. The decline in gasoline and energy prices is helping consumers bear the burden of higher taxes.

Producer prices (prices received by producers) decreased in April by 0.7%, and consumer prices (prices paid by consumers) declined by 0.4%. Deflation may be the Federal Reserve’s more immediate concern when it meets next on June 18 and 19. Considering that housing starts in April came in at a seasonally adjusted annualized rate of 853,000—down 16.5% from the March rate, but up 13.1% from April 2012—the Fed may want to keep mortgage rates low by possibly increasing the pace of mortgage-backed securities purchases. If the hallmark of the economic recovery is the recovery in housing, the Fed may not want to jeopardize the progress that has been made.

The views expressed are as of 5-16-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.

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