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Don’t Expect Gas, Food or Housing Prices to Drop Soon, Experts Say

Duke economists brief media on impacts of inflation

Don’t Expect Gas, Food or Housing Prices to Drop Soon, Experts Say
Duke professors David Berger, Connel Fullenkamp and Emma Rasiel

DURHAM, N.C. -- With gas prices and interest rates continuing to rise, the country appears headed toward a recession, three Duke economists said Wednesday. Still, high prices will eventually recede and the local housing market should remain largely healthy because demand continues to exceed supply.

The three Duke experts talked about gas prices, inflation, interest rates, the housing market and other important issues in a virtual briefing for journalists. Watch the briefing on YouTube.

Here are excerpts:


Connel Fullenkamp, professor of the practice, economics

“We’ll see interest rates continue to increase. They’ve been increasing really throughout the spring. What the (Federal Reserve) wants to see is solid evidence that inflation is slowing down and the economy is cooling off. I’m afraid the Fed is going to have to wait a lot longer and continue to raise interest rates before they see that.”

“I really see this as the summer of the last hurrah in terms of consumption because we still have a lot of families who have leftover money from the pandemic fiscal stimulus packages and a lot of people have pent up consumption demand. They want to take that summer vacation, they know the prices are increasing. So you put all those things together and people are going to say, ‘Let me go out and spend this extra money before prices go up too much.’”

“So I think the Fed is going to have to wait a bit longer to see significant evidence of the economy cooling off from its actions.”



David Berger, associate professor, economics

“Interest rates have gone up substantially. I suspect the housing market will cool somewhat, relative to what it’s been like in the last two or three years. But for the Triangle specifically, I would be quite surprised – it definitely will cool at the top end of the market – but I would be quite surprised. It’s going to be more of a modest cooling. It’s important to remember we have sort of record low housing inventories, still in the Triangle.”

“Many people are still moving here. Supposedly 15 households a day to Wake County, five households a day to Durham County. I would expect to see fewer bidding wars, probably, and some price decreases. But I would be surprised if prices fell substantially here given the underlying demand factors.”

“But for sure the fact that mortgage rates have gone up – average payments are at least 30 percent more expensive than they were a year ago – that is quite substantial.”


Emma Rasiel, professor of the practice, economics

“We certainly are expecting that gas prices will continue to stay high. That’s the most noticeable price increase for most of us. We fill the same size tank every week so we know fairly precisely how much that has gone up by.”

“Food is the other big issue in terms of pricing. We’ve seen meat prices in particular go up a lot. Fruit and vegetable prices have not gone up as much for various reasons, but I think over the course of this year we may see those fruit and vegetables going up in prices as well because there are constraints on access to fertilizers, which is really affecting the production cycles.”



Emma Rasiel

“If there is a gas tax holiday over the summer, which has been suggested … what we have to keep in mind is it’s then up to the gas suppliers to decide how much of that to pass on to consumers. It’s the providers of gas (who) are the ones who get that break. Maybe that will pass 8 to 10 cents on to consumers. Overall, I think it’s a fairly small impact. Maybe a $1, or $1.50 less in the cost of filling your tank.”

“I don’t think it will make a huge difference, honestly. I think it’s more of a PR exercise than anything else.”



Connel Fullenkamp

“Inflation is going to carry the prices higher. People are really dependent on their cars. It takes a very long time for people to adjust their lifestyles. You really can’t just pick up and move.”

“The real story behind gas prices is refining capacity. Gas prices have gone up a lot more than we’ve seen when oil prices have gone up by this much before. During the pandemic, a lot of refinery capacity was shut down and those refineries are so old that the companies that own them don’t want to restart them. They’re either too inefficient or too unsafe to restart. We’re seeing a lot of gas increase prices because of a lack of refining capacity. A new refinery takes a long time to build. It’s very expensive to build. It’s not clear we’re going to add any refining capacity in the short term in the U.S.”



Connel Fullenkamp

“There’s a lot of aspiration out there to move to electric vehicles. But they’re such a small part of the market. It’s only in the single-digit percents in the U.S. We’re stuck with, just like everything else in the supply chain, limited capacity to expand production.”

“So even if all the people who wanted to purchased electric automobiles and had the money to, we really have limited capacity to expand production of electric vehicles at this point.”



David Berger

“All housing markets are local. It’s going to depend on the housing market. The right precursor is to look back to housing markets in the early ’80s where we had a large increase in interest rates under the Reagan administration. There we saw house prices fall.”

“I do think it’s not unreasonable to expect prices to fall 5, 10 percent in many markets around the United States.”

“I expect the higher end of the market to go up. It’s much more expensive to buy a million-dollar house than it was before.”

“I could see housing prices moderating. My expectation for here is that they moderate. Last year, housing prices in Durham and Raleigh went up 30 percent at least. That’s not going to happen again. I’d think much closer would be below 10 percent, 5 percent, something like that. But if rates keep going up, the Fed’s going to keep raising rates until they get inflation under control. So as rates go up, house prices could fall a little bit.”

“There’s very little housing inventory available in the Triangle. That suggests there’s just not a lot of supply. So even if demand cuts back a little bit, there’s still room for house prices to go up.”



Emma Rasiel

“It is by no means unheard of to see prices actually fall – not just stop going up but actually come back down again. There are times when we see this across the whole economy at large though it varies tremendously sector by sector.”

“We can all think about the cyclicality of gas prices because we’re all very sensitive to it. Back in 2008 gas prices were at $4; five or six years later it was down to less than $2 a gallon; now it’s back up again. Same applies to food. Those markets where the price is most volatile are also the markets where we actually see prices fall under the right set of circumstances.”



Connel Fullenkamp

“Who has extra money and how are they going to use it? By the end of the summer, most of the families who have extra money and are willing to spend it, who didn’t just sock it into savings, for example, are going to have to spend that. And that could potentially help start cooling the economy down. One of the realities of using monetary policy to fight inflation is that it just takes a long time. Monetary policy works for the banking system; you have to wait for people to stop borrowing. So it just takes a while. We have to get through this overhang of extra money laying around from the pandemic.”



Emma Rasiel

“I would actually swing that question the other way around and say, ‘How sensible is it for a number of different policies to be experimented with?’ and whether the best thing to do is go with the monetary policy that has been used for decades that takes time but will work over time -- whether it’s better to just focus on that and not keep trying other things.”

“Particularly, something like the tax holiday on gas. Those are short-term effects that may affect consumers less than the government intends. They may end up just being beneficial for the gas companies.”

“What we need to see ... that money that has been swimming around in the economy because of all the fiscal stimulus, we need to get that largely spent so that the economy can sort of settle down and go back into a pattern we understand better.”



David Berger

“We learned that we needed to have better underwriting standards. The good news is underwriting standards are much improved. It’s much more difficult to get a loan if you’re more risky or more likely to default than in the past. So in that sense I’m pretty sanguine; we’re not going to see a lot of foreclosures.”

“A lot of households have a lot of cushion. Because house prices have gone up so much recently, households have a lot of cushion. They’re much more able to weather these moderate price-falls that might happen. I’m not particularly concerned about foreclosures.”



Connel Fullenkamp

“If I’m a retailer, one sure way to make my customers unhappy is to do a lot of frequent price increases. So what retailers in many cases are trying to do, they’re trying to moderate the number of price increases. They try to increases once and then come back to it in a few months rather than doing it this week and then next week. So if you’re in that kind of a situation where you’re trying to pass on some costs but also trying to hold the line on the number or prices increases, you’re in a real guessing game. You’re trying to guess how high you can raise the price right now and then stick to that price for a while.”


Faculty Participants

David Berger
David Berger is an associate professor in the Department of Economics at Duke. His research interests include housing, labor and finance.

Connel Fullenkamp
Connel Fullenkamp is a professor of the practice and director of undergraduate studies in the Department of Economics at Duke. He studies financial market development and regulation of financial markets.

Emma Rasiel
Emma Rasiel is associate chair and a professor in the Department of Economics at Duke. She is also teaching director of the Duke Financial Economics Center. Rasiel teaches courses on financial markets and energy finance.