By Greg Heym, Brown Harris Stevens Chief Economist and host of Crossing The Line
Today we have the latest on inflation. Let's hope the PI brothers don't scare us too much.
Consumer Prices Rose 0.2% in August
The consumer price index rose 0.2% last month and was 2.5% higher than a year ago. Both of those figures were in line with the Dow Jones forecast. At 2.5%, the annual growth rate is at its lowest level since February 2021. Here are the other highlights of the report:
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Energy prices fell 0.8% last month and were 4% lower than August 2023.
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Core inflation—which excludes food and energy prices—rose 0.3% last month, slightly higher than expected. Over the past year, core inflation is up 3.2%. The decline in energy prices is the reason the headline number (2.5%) is lower than the core figure (3.2%).
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Housing costs were up 0.5% in August and 5.2% higher than a year ago. As I’ve said before, it will take more time for the housing index to come down as it is calculated in six-month intervals.
Except for the slightly higher-than-expected monthly increase in core CPI, this is a good report. Inflation is moving in the right direction and is probably being overstated due to the delay in updating housing costs. That means that we may already be at the Fed’s 2% target rate without knowing it.
You’d think this report would make people happy, but that’s hard to do these days. Markets immediately started worrying that since core inflation was higher than expected, the Fed would not be cutting 50 basis points at its meeting next week. Luckily, they calmed down and stocks finished Wednesday up.
Yesterday, the producer price index came out and looked very similar to the CPI data. Core PPI was slightly higher than expected, while the other headline numbers were in line with forecasts.
The big takeaway here is that unless some data release from early next week —like retail sales—convinces them otherwise, the Fed will be cutting rates by 0.25% next week. Keep in mind two things:
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No matter how much the Fed cuts rates, it can take up to a year or more to have any real impact on the economy. So don’t get too upset if they don’t cut by 0.50%.
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That doesn’t mean mortgage rates will fall 0.25% next week.
Speaking of mortgage rates…
Mortgage Rates Fall to 6.20%
See, mortgage rates fell by 0.15% this week, and the Fed didn’t do anything. Rates are now at their lowest level since February 2023. Maybe more impressive is that since the beginning of August 30-year rates have fallen from 6.73% to 6.20%, a 0.53% decline. And again, the Fed did nothing during that time and hasn’t touched rates since July 2023. Get the picture? I knew you would.
Remember that while rates have come down and are expected to fall further, that doesn’t necessarily mean you should wait to buy a home. Prices could go up while you’re waiting, because:
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While inventory is up sharply over the past year, it’s still a seller’s market in most parts of the U.S.
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Today’s lower rates will get buyers out there buying, which could bring inventory back down to very low levels.
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That would make prices go up, negating your savings on the mortgage rate.
Just some friendly advice from a frustrated Jets fan.
