Solid Inflation Data Pushes Mortgage Rates Lower
The most significant economic data released last week focused on inflation, and the results were very close to the expected levels. The European Central Bank meeting also revealed no major surprises. Mortgage rates declined a bit more to the lowest levels since early 2023.
Core CPI Remains Steady
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 August, Core CPI was 3.2% higher than a year ago, the same as last month, remaining near the lowest annual rate of increase since April 2021.
CPI Still Above Fed’s Target
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 5.2% higher than a year ago and continued to be a primary reason why inflation remains stubbornly elevated. By contrast, several categories posted declines in July, including used car prices and medical care services.
Producer Price Index Stays Flat
Another significant inflation indicator released last week, which measures costs for producers, was also essentially in line with the consensus forecast. The core Producer Price Index (PPI) was 2.4% higher than a year ago, the same annual rate as 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.
ECB Cuts Rates Again
At its June meeting, the European Central Bank (ECB) implemented its first rate cut since September 2019. On Thursday, the ECB again reduced benchmark interest rates by another 25 basis points, as expected. The statement released after the meeting continued to emphasize that future monetary policy decisions will be based on incoming economic data while providing no specific guidance. Investors anticipate that there will be one more 25 basis point rate cut by the ECB before the end of the year.
Mortgage Rates for the week of 9-16-2024