A Focus on Inflation
The focus last week was on the inflation data, and it was a bit stronger than expected. As a result, mortgage rates ended the week higher.
Core CPI Exceeds Expectations
Each month, the Consumer Price Index (CPI) is one of the most highly anticipated inflation indicators. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors often prefer to look at core CPI, which excludes food and energy. In September, Core CPI was 3.3% higher than a year ago, above the consensus forecast and up from an annual rate of increase of 3.2% last month.
Shelter Costs Fuel Inflation
Although this annual rate is down significantly from a peak of 6.6% in September 2022, it is still far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Shelter (housing) costs were 4.9% higher than a year ago and continued to be a primary reason why inflation remains stubbornly elevated. Other categories which posted large monthly increases included apparel, used car prices, and medical care services.
PPI Aligns with Forecasts
Another significant inflation indicator released last week, which measures costs for producers, was essentially in line with the consensus forecast. The core Producer Price Index (PPI) was 2.8% higher than a year ago, up from an annual rate of 2.4% last month. Of the two major inflation reports, investors tend to place less weight on PPI, since it reflects a smaller slice of the economy than CPI.
Rate Cut Debate
The detailed minutes released last Wednesday from the last Fed meeting on September 18 revealed an intense debate about the decision to cut the federal funds rate by 50 basis points rather than 25 basis points. The statement released after the meeting indicated that 11 of the 12 voting officials supported the decision, while just one dissented. The minutes, however, suggested that there was a little more disagreement during the debate. According to the minutes, “some” participants supported a smaller 25 basis point reduction to provide more time to evaluate the shifting economic outlook.
Mortgage Rates for the week of 10-14-2024