Inflation In Focus
Investors were focused on the inflation data last week. The latest results were essentially in line with expectations, but mortgage rates moved higher.
Core CPI Holds Steady
The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy. In November, Core CPI was 3.3% higher than a year ago, matching the consensus forecast and the same annual rate of increase as last month.
Shelter Costs Drive Inflation
Although this annual rate is down significantly from a peak of 6.6% in September 2022, and from 3.9% in January of this year, 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 continue to be a primary reason why inflation remains stubbornly elevated. Other categories which posted large monthly increases included new and used car prices, but this was likely due to the high demand for vehicles to replace those damaged by hurricanes.
PPI is as Forecasted
Another significant inflation indicator released last week which measures costs for producers also was essentially in line with the consensus forecast. The core Producer Price Index (PPI) was 3.4% higher than a year ago, up from an annual rate of 3.1% last month and the highest level since February 2023. 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.
ECB Cuts Rates Again
Last Thursday, the European Central Bank (ECB) reduced benchmark interest rates by another 25 basis points to 3.00%, as expected, marking its fourth cut this year. The statement released after the meeting again emphasized that future monetary policy decisions will be based on incoming economic data, while providing no specific guidance. According to the statement, the battle against inflation is “well on track” and officials expect to reach their target level next year. Investors anticipate that there will be several more 25 basis point rate cuts by the ECB next year.
Mortgage Rates for the week of 12-16-2024