After a year of inflation coming down, the last stretch of 2024 has seen a reverse course, per the latest Consumer Price Index (CPI).
The CPI, updated every month by the U.S. Bureau of Labor Statistics, measures changes to the costs consumers are facing and gauges inflation. From October to November 2024, inflation increased month-over-month by 0.3% and year-over-year by 2.7%–compare the Federal Reserve’s ongoing goal of reaching 2% inflation. Excluding food and energy costs (which are the most volatile), the core CPI increased 3.3% year-to-year.
Back in October, the CPI broke a seven-month long inflation downturn, increasing by 0.2% (month-to-month) and 2.6% (year-to-year).
Dr. Lisa Sturtevant, chief economist of Bright MLS, previously told RISMedia that the December CPI would indicate if the November reversal was a blip or a trend.
In response to today’s results, Sturtevant echoed consensus projections from other economists and pundits: at the Federal Reverse’s upcoming December 17 – 18 meeting, they will likely cut rates by 25 basis points. The latest jobs report showed strength in the labor market, which gives the Fed incentive to cut when the inflation rate might make them pause.
Realtor.com® Chief Economist Danielle Hale noted in a release that the Fed’s actions are not driven solely by inflation, but also its dual mandate of maximum employment: “The full employment portion of the Fed’s dual mandate continues to be met, but the Fed is likely to regard risks to both sides of the mandate as relatively balanced.”
In 2025, the Fed is expected to pause its rate cuts, so as to survey the impact of the previous cuts before making more. “Today’s elevated inflation data put more emphasis on the path forward, and suggest fewer rate cuts are likely ahead,” said Hale, but “given the current position of monetary policy, I expect another quarter-point rate cut decision in next week’s meeting.”
Even with the December rate cut likely still on schedule, Sturtevant projects that this projected rate cut will not necessarily spur new homebuyers.
“Since May 2023, wages have been rising faster than inflation, which is the main reason why persistently higher inflation has not slowed overall consumer spending. But for some families, the cumulative effect of higher consumer prices has taken a toll,” she explained, adding that the 2025 housing market will be one most tailored to high-income individuals.
“Existing homeowners who have accumulated significant housing equity will be in a good position to make a move-up purchase, but moderate-income individuals and families who want to purchase a home in 2025 are facing tighter budgets, more financial stress, and will find the housing market much more challenging.”
Shelter costs, which rose 0.3% month-over-month and 4.7% year-over-year, accounted for almost 40% of the increase. This is a slight moderation from the previous month (where shelter costs rose 0.4%) but still higher than two months prior in the October CPI, where shelter costs had increased 0.2%. Hale also noted in a release that the yearly shelter inflation index “continues to outpace its immediate pre-pandemic range which averaged 3.3% (from 2017 – 2019).”
Both Bright MLS and Realtor.com forecast that mortgage rates will not fall below 6% during 2025, but Hale believes that “steady monthly payments and income gains from a still robust economy and healthy labor market will help affordability improve marginally in the year ahead.”
For the full CPI, click here.
