Nearly everything has become more expensive as a result of the epidemic, supply chain problems, and other local, national, and international causes. Although there is disagreement among economists over how this will develop over time, many believe that this period of high inflation will last far into 2023, with interest rates continuing to rise during this time.
KEY POINTS
- Because interest rates are the major instrument used by central banks to manage inflation, they tend to fluctuate in the same direction as inflation but with lags.
- To combat the greatest inflation rates in 40 years, the Fed wants to keep hiking interest rates in 2022.
- The Federal Reserve in the United States sets a range for its benchmark federal funds rate, which is the interbank rate on overnight deposits, with the goal of achieving an average inflation rate of 2% over time.
- Conversely, central banks may reduce interest rates to boost the economy if inflation is decreasing and economic growth is declining.
- In general, a policy reaction to rising inflation involves raising interest rates.
Inflation: What does it mean for your commission?
Inflation erodes the purchasing power of real estate brokers. A commission on a $1M property is worth about $2000 more today than it will be in nine months. During periods of high inflation, this erosion of value is particularly devastating to a broker’s earning/purchasing power.
Three steps you may take to prevent the loss of your real earnings
- Request a greater commission from the seller.
- Increase the commission split you agree to with the brokerage.
- Make the CRE deal cycle shorter .
How interest impacts your ability to generate money
Inflation can hurt individuals, businesses, and the economy as a whole if it rises too quickly and lasts too long. The Fed raises interest rates in periods of high inflation. This rate hike helps reduce consumer spending, decrease demand, and (hopefully) lower prices.