Inflation continues to spiral downward toward the Federal Reserve’s goal of 2%, pointing to further interest rate cuts in the coming months and other positive signs for the housing market.
The Consumer Price Index (CPI)—one of the main measures for inflation—rose 2.4% year-over-year in September, only 0.1 percentage points down from August’s rise of 2.5%. This was both the fifth straight month of annual declines and the smallest increase seen since February 2021.
Month-over-month, the all-items index increased 0.2%, the same increase seen from June to July and July to August.
Core inflation (all items excluding food and energy prices, which are most likely to fluctuate) rose 0.3% from the previous month—the same as in August—and 3.3% year-over-year. Shelter inflation (the cost of housing) rose 0.2% month-to-month and 4.9% from the same time last year, down from 5.2% in August. Food inflation increased 0.4% on a monthly basis, and 2.3% year-over-year, and energy inflation fell 1.9% from the month before, but grew 6.8% since a year ago.
Food and shelter inflation also largely contributed to the overall CPI’s monthly increase, specifically over 75% of it.
Despite the Fed stating that they are more concerned with jobs data at the moment for determining their rate movements, Realtor.com® Senior Economist Ralph McLaughlin said that this month’s CPI data “seems to imply last month’s cut was the right move and that the Fed seems to have flared at the right time to nail a soft landing.”
“This is especially true in light of the September jobs report, which surprised us,” he continued. “Since the Fed has put more weight on jobs market performance when making its decision, the September report gives fodder for those supporting two 25 bps cuts each in November and December.”
Other indexes that increased in September include motor vehicle insurance, medical care, apparel and airline fares. On the other hand, a decrease was seen in the index for recreation and communication.
Now to the big question: what does this month’s data mean for the fall buying season, and for mortgage rates?
Bright MLS Chief Economist Lisa Sturtevant said that lower inflation “suggests that mortgage rates will come down further this fall,” but added that rates are impacted by many other economic factors that could cause a lot of different and unexpected fluctuations.
“It is a fool’s errand to try to time mortgage rates, particularly in this unusual housing market and economy,” she continued. “Prospective homebuyers should find more inventory and should have more leverage in the coming months, which could make it a good time to buy. The decision about when to buy a home, however, will depend not only on external economic conditions, but also on personal financial and family situations.”
