Findings could be the makings of a year-end resurgence
Amid the plethora of bad economic news this week emerged a positive omen for the future in the form of the Consumer Price Index (CPI) indicating inflation is being tamed, which could bode well for mortgage rates.
Released earlier this week, the CPI rose 3.2% for the 12 months that ended in October. The rate was down from 3.7% the prior month. It also has the distinction of being the lowest annual rate since March 2021, as reported by the Bureau of Labor Statistics.
Lawrence Yun, chief economist for the National Association of Realtors, noted the immediate impact the CPI numbers had on mortgage rates.
It may be time for the Fed to cut interest rates
“Mortgage rates are plunging with the news of inflation calming. Consumer prices rose by 3.2% in September, even with the rent component still showing a hefty gain of 6.7%,” the NAR analyst said. “Non-official private sector rent data has shown a 0% to 2% rise, which, if hypothetically used in the official figures, would bring inflation down below the Federal Reserve’s desired inflation target of 2%.”
He urged the Fed to cut interest rates rather than increasing them as they have been primarily doing: “The interest rate rises should be over, and the Fed will have to consider cutting interest rates seriously,” he said. “In the meantime, the bond market is reacting as if the Fed will be cutting interest rates next year. Mortgage rates look to head towards 7% in a few months and into the 6% range by the spring of 2024.”
The mood was downright jubilant at Seeking Alpha, which categorized this week’s CPI report as “clearly a shock to the consensus as the rate of inflation fell more than had been anticipated.” For Seeking Alpha analyst Lawrence Fuller, it was a case of “I told you so”.
“I have been preaching for the past year that the rate of inflation would fall as fast as it rose, and this report supports that assertion,” he said. The latest CPI report “…ends the discussion of rate hikes and should also end the discussion about rates staying higher for longer.”
CPI report hints at potential year-end rally
The everyday consumer comes out ahead in this scenario: “It looks like the little guy was one step ahead of Wall Street this time around,” Fuller said. “The professional money management community has been extraordinarily bearish as of late, which means there is plenty of fuel left for our year-end rally.”
Among the Bureau of Labor Statistics CPI report’s more salient findings:
- The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in October on a seasonally adjusted basis, after increasing 0.4% in September. Over the last 12 months, the all items index increased 3.2% before seasonal adjustment.
- The index for shelter continued to rise in October, offsetting a decline in the gasoline index and resulting in the seasonally adjusted index being unchanged over the month. The energy index fell 2.5% over the month as a 5.0% decline in the gasoline index more than offset increases in other energy component indexes. The food index increased 0.3% in October, after rising 0.2% in September. The index for food at home increased 0.3% over the month while the index for food away from home rose 0.4%.
- The index for all items less food and energy rose 0.2% in October, after rising 0.3% in September. Indexes which increased in October include rent, owners' equivalent rent, motor vehicle insurance, medical care, recreation, and personal care. The indexes for lodging away from home, used cars and trucks, communication, and airline fares were among those that decreased over the month.
- The all items index rose 3.2% for the 12 months ending October, a smaller increase than the 3.7% increase for the 12 months ending September. The all items less food and energy index rose 4.0% over the last 12 months, its smallest 12-month change since the period ending in
- September 2021. The energy index decreased 4.5% for the 12 months ending October, and the food index increased 3.3% over the last year.
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