Key Takeaways:
– Consumer prices increased by 3.2% in October, slightly lower than expected and down from September’s rate of 3.7%.
– “Core” prices, which exclude food and energy, rose by 4.0% in October, the smallest change in 12 months.
– The index for shelter increased by 0.3% in October, offsetting a decline in gasoline prices.
– Shelter prices have increased by 6.7% over the past 12 months, double the overall inflation rate.
– The slowdown in shelter inflation is expected to reverse in 2024 as new residential construction activity slows down.
– Persistent high inflation expectations make it difficult for the Federal Reserve to bring inflation down.
– The easing of inflation is seen as positive news for investors, potentially avoiding an additional rate hike.
– The 10-year Treasury yield has fallen to its lowest level since September 22.
HousingWire:
Consumer prices were up 3.2% in October from a year earlier, down from 3.7% in September and slightly slower than economists’ expectations. “Core” prices, excluding food and energy, were up 4.0% in October, the smallest 12-month change since the period ending in September 2021.
However, the index for shelter continued to climb in October by 0.3%, offsetting a decline in gasoline prices and resulting in the seasonally adjusted index being unchanged from September.
Even though shelter prices dropped to 0.3% from 0.6% the prior month, they’ve increased 6.7% over the past 12 months, twice as high as the overall inflation rate.
“Shelter inflation has been coming down slowly since the summer, as new residential construction activity ramped up in 2023,” said Lisa Sturtevant, chief economist for Bright MLS. “But permits for new construction are lower, which means that the boom in supply that has brought rents down in some markets will likely slow in 2024, which could put upward pressure on rents again.”
The longer inflation stays elevated, the more customers expect inflation to remain high. “And if consumers reset their expectations for inflation to be at 3 or 3.5% it will be harder and harder for the Fed to bring inflation down,” Sturtevant said.
The inflation data comes on the heels of a cooler October jobs report. In comparison, the CPI rose 3.7% in September and 3.7% in August.
This easing of inflation is good news for investors who were counting on a strong report today to avoid an additional rate hike at the Federal Open Market Committee’s meeting on Dec. 12-13. On Tuesday, traders priced in a nearly 85.7% chance the Fed will hold interest rates steady in December, according to the CME Group’s FedWatch tool.
As of 9 a.m. EST, the 10-year Treasury yield had fallen to 4.49, its lowest level since Sept. 22.
Related
Source link
Property Chomp’s Take:
The recent release of consumer price index (CPI) data has caught the attention of economists and investors. In October, consumer prices rose by 3.2% compared to the same period last year, which was slightly lower than expected. However, “core” prices, which exclude food and energy, increased by 4.0% in October, the smallest change in 12 months.
One notable aspect of the CPI data is the continuous rise in the index for shelter. Despite a decline in gasoline prices, the index for shelter increased by 0.3% in October, offsetting the decline and resulting in an unchanged seasonally adjusted index from September. Over the past 12 months, shelter prices have surged by 6.7%, double the overall inflation rate.
The increase in shelter prices can be attributed to various factors. Lisa Sturtevant, chief economist for Bright MLS, points out that the slow decline in shelter inflation can be attributed to increased residential construction activity in 2023. However, the recent decline in permits for new construction suggests that the supply boom that has brought down rents in certain markets may slow down in 2024, potentially leading to upward pressure on rents once again.
The persistence of elevated inflation has implications for consumer expectations. As inflation remains high, consumers may reset their expectations and anticipate inflation to be around 3% or 3.5%. This can create challenges for the Federal Reserve in its efforts to bring inflation down.
The release of the CPI data comes after a milder October jobs report. The CPI rose by 3.7% in September and August, highlighting the recent easing of inflation. This easing of inflation is welcomed by investors who were hoping to avoid an additional rate hike at the upcoming Federal Open Market Committee meeting in December.
Market expectations indicate a high likelihood of the Fed maintaining interest rates at their current level in December. As of now, traders have priced in an almost 85.7% chance of no rate hike. This sentiment is reflected in the 10-year Treasury yield, which has fallen to 4.49%, its lowest level since September 22.
In conclusion, the
