Part 4/11:
One crucial component impacting inflation is housing prices, which constitute a significant portion of the Consumer Price Index (CPI). When mortgage rates are low, demand for homes surges, pushing prices upward and feeding into inflation data. Conversely, rising interest rates tend to dampen demand, leading to falling home prices, which subsequently help reduce inflation figures.
If a recession materializes, it would likely lead to a slowdown in housing demand, reducing home prices further. This contraction would positively influence CPI data, providing the necessary downward pressure on inflation. JPMorgan believes that only through this process—driven by a recession—can inflation be pulled down to sustainable levels.