613 viewsGregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today, we have the latest on inflation, a housing industry plea to the Fed, and a congratulations to a groundbreaking economist.
Prices Rose More than Expected in September
The consumer price index rose 0.4% last month and was 3.7% higher than a year ago. Both these figures were slightly higher than forecasted. Core inflation—which removes food and energy prices—increased 0.3% in September and was 4.1% above last year’s level—exactly in line with expectations. So, not the best news on inflation, but not the worst news either.
Here’s what you need to know:
- September’s CPI increase was down from 0.6% in August. A 10.6% jump in gas prices is what fueled the high August number, but those prices rose just 2.1% in September.
- Housing still accounts for over half the increase in overall CPI.
- Core prices are more important to watch than the headline number, as they can take longer to come down.
- Real hourly earnings fell 0.2% last month. This means that prices are growing faster than wages right now, eroding the purchasing power of workers.
- Inflation remains well above the Fed’s 2% goal.
That last bullet is perhaps the most important, as it reminds us that even though great progress has been made in bringing down inflation, it’s still too early to spike the football. That means the possibility of more rate hikes, which leads us to our next topic.
Please Sir, We Want No More
Sorry for the Oliver Twist reference, but it’s the first thing that came to mind when I heard about a letter the housing industry sent Fed Chairman Powell this week. In it, The National Association of Home Builders, the Mortgage Bankers Association, and the National Association of Realtors asked the Fed to:
- Stop hiking rates
- Stop selling its mortgage-backed securities
In case you’re wondering, the reason they want the Fed to stop selling securities is that it will take money out of the economy, which will bring rates up.
While everyone is aware that the highest mortgage rates in over two decades are crushing the housing market, the letter brings up an excellent point that doesn’t get as much coverage: The biggest contributor to inflation today remains the cost of shelter, which accounted for 90% of the increase in CPI in July, and over half of September’s inflation. To get housing prices down, America needs to build more homes, which is very difficult to do when rates for construction loans and mortgages are this high.
The problem for the housing industry is that to do its job, the Fed can’t worry about how slow the housing market is right now. Their job is to get inflation down to 2%, and they unfortunately can’t worry about what that does to mortgage rates, credit card rates, and all the other rates that have surged over the past 20 months. It’s a nice try by these housing groups, but I expect one more rate hike from the Fed, most likely after their December meeting.
Congratulations, Professor Goldin!
Claudia Goldin of Harvard University won this year’s Nobel prize for economics for her work with women and the labor market. In their press release, The Royal Swedish Academy of Sciences said the following:
"This year’s Laureate in the Economic Sciences, Claudia Goldin, provided the first comprehensive account of women’s earnings and labour market participation through the centuries. Her research reveals the causes of change, as well as the main sources of the remaining gender gap."
Dr. Goldin is the third woman to with the award, and the first to do so solo. She was also the first woman to receive tenure in economics at Harvard and the University of Pennsylvania. If you’d like to learn more about her work, The Harvard Gazette has an excellent article on her amazing career.
Congratulations, Dr. Goldin.