Favorable Inflation Data by Igor Babamovski

Favorable Inflation Data August 13, 2024 Overview: Over the past week, investors were focused on two key monthly inflation reports. In some good news for mortgage markets, all the data was in line with or below expectations, clearing the path for Federal Reserve rate cuts later this year. As a result, mortgage rates moved lower.

The Consumer Price Index (CPI) is one of the most widely followed inflation indicators. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors typically look at core CPI, which excludes the food and energy components. In July, core CPI was 3.2% higher than a year ago, which is down from 3.3% last month. It’s the lowest annual rate of increase since April 2021. Although this annual rate has fallen sharply from its peak in September 2022, it is still far above the readings around 2% seen early in 2021, which is the stated target level of the Fed. The primary reason is that shelter (housing) costs remain stubbornly elevated. However, the CPI data measures shelter costs with a lag, and more timely indicators from other sources suggest that this component will gradually move lower. In contrast to shelter, used vehicle prices dropped 2.3% from June and were down 11% from a year ago. Medical services and apparel also posted significant declines in July. Another major inflation indicator released this week that measures costs for producers was even lower than expected. The core Producer Price Index (PPI) was 2.4% higher than a year ago, which is down from an annual rate of 3% last month and far below the consensus forecast of 3%. Of the two major reports, investors place less weight on PPI, since it reflects a smaller portion of the economy than CPI. Mortgage applications benefited from lower rates this week. According to the latest data from the Mortgage Bankers Association (MBA), applications to refinance jumped 35% from last week and were a massive 118% higher than one year ago. However, purchase applications rose just 3% from the prior week and still were down 8% from last year at this time. Core CPI (annual % change) Chart Week Ahead Aug. 15 Import and Export Price Indexes Retail Sales report Aug. 16 New Residential Construction report (also known as Housing Starts) Aug. 22 Existing-Home Sales report Aug. 23 New-Home Sales report Looking for expert guidance on the current mortgage market? Reach out to me today! Igor Babamovski NMLS# 175504 Telhio Credit Union 330 Rush Alley, Suite 500 Columbus, OH 43215 614-225-7804