After more than a year of “transitory” inflation, investors and consumers everywhere are celebrating what may be the most positive sign yet that policymakers have started to get a grip on runaway price increases, as the latest consumer price index (CPI) report showed better than expected data.
Overall consumer price increases fell to 7.7% year-over-year, down from 8.2% last month. Core inflation, which excludes more volatile food and energy costs, dropped to 6.3%, from 6.6%.
Inflation has remained one of, if not the biggest concern for consumers and businesses across the country, and hotter-than-expected CPI reports over the summer had many questioning the decisions of policymakers. The 7.7% top-line increase, while still far above the Federal Reserve’s target of around 2%, is the smallest since January.
While stock indices rallied in the aftermath of the report, plenty of uncertainty remains as far as the likely path of inflation, and how the Federal Reserve will react to the news: slowing—or ending earlier than anticipated—a brutal series of rate hikes; or staying the course and pushing interest rates to restrictive levels.
Also worrying for the housing industry: shelter cost increases did not slow at all, rising 0.8% compared to 0.7% last month—the largest single-month jump since 1990. Rental costs jumped 0.7% from last month, and owner-equivalent rent rose 0.6%.
All that means housing affordability will likely remain a concern, especially if the Fed keeps pushing forward with rate hikes.
“Even as rate hikes begin to slow inflation, the Fed will continue on its path of continued rate increases,” said Dr. Lisa Sturtevant, Bright MLS chief economist, in a statement. “As a result, we should expect mortgage rates to also stay elevated. Higher rates, coupled with the upcoming winter holidays, means housing market activity will basically grind to a halt through the end of the year.”
Brokers have cited mortgage rates and inflation as some of their top concerns for the real estate industry, meaning any good news on inflation is likely good news for real estate. But the danger of a recession, which economists have seen as more and more likely, continues to weigh on consumers. And some items, like fuel and energy costs, continue to spiral higher, now 17.6% elevated from a year ago.
There was other positive news for consumers, though, in this month’s report, including a huge drop in used car prices, down 2.4% from last month. Food price growth slowed also, with food at home posting its smallest month increase since December of 2021, at 0.4%.
Sturtevant cautioned that there was still a long way to go before any of this has a direct, positive effect on housing.
“As today’s inflation numbers show, the costs of everyday essentials that families buy are still much higher than they were a year ago,” she noted. “Housing costs accounted for over half of the monthly increase in prices. This means that price pressures for prospective homebuyers remain challenging.”