According to recent reports, inflation reached a nearly 30-year high of 9% in April 2022 and is likely to grow even further in 2022. The cost of living and overall standard of living will increase due to the increase in inflation. High Inflation Affect Your Mortgage payments is one of the most problematic effects of inflation growth.
What is Inflation?
Inflation is the growth rate in the cost of goods and services over the past 12 months. RPI is measured by the Consumer Price Index (CPI) and the Retail Price Index (RPI). Both indices assess the cost of typical consumer products and services by comparing current prices to those from the previous year. Using the CPI, the percentage change in prices for the ‘basket’ of goods and services shows that those prices are, on average, 2% higher than they were last year.
The RPI also includes some housing prices and mortgage payback charges. The CPI and RPI examine goods like food and gasoline, services like dining out, energy bills, and mobile phones. Today, the government uses the CPI to measure inflation; however, it excludes housing costs and mortgage payments.
How does Inflation Affect Your Mortgage?
The impact of inflation on government and business decisions is significant. To control inflation and deter companies from raising prices beyond what is necessary. They may raise interest rates if they anticipate it will soon exceed 2%. Or, if they expect a significant decrease in inflation below 2%, they may lower interest rates to make borrowing more affordable, allowing people and businesses to spend more and stimulating the economy. The cost of your mortgage is significantly affected by inflation because of this. Anyone wishing to secure a new mortgage will have to pay more interest than if they had applied before the interest hike if interest rates increase to combat inflation.
Throughout the rest of 2022 and possibly into 2023, mortgage rates are expected to rise lower than inflation due to the base rate expected to rise.
Mortgage Inflation Calculator
The rise in prices of goods and services throughout an economy is called inflation. You need more money to purchase the same products as prices rise. Deflation, which occurs when prices drop for various products and services, is the opposite of inflation. Because it reduces investment returns, inflation is a crucial issue for investors to comprehend.
Defined Inflation Rate
You can’t merely examine one product’s price change to determine the inflation rate. It would help if you considered what is referred to as a “basket” of goods and services. CPI (Consumer Price Index) is used to calculate inflation rates. The CPI tracks prices from month to month and year to year for a basket of goods and services that the government deems representative.
What Is the Formula for the Inflation Rate?
((B-A)/A) x 100 = inflation rate. In this blog, we have go through the various aspects of inflation and what they might reveal about the state of the economy.