Consumers have seen the closely watched inflation reading Consumer Price Index (CPI) fall from a 40+ year high of 9% in June 2022 to the recent read of 3% on a year-over-year basis.
Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year. It may be one of the most familiar words in economics.
That has been a big relief but could inflation reverse course and begin to head higher once again? Since the beginning of July energy prices have risen which is inflationary data. Oil prices rose to $82 at the end of July, up from $70 early in the month. We know inflation is the arch-enemy of bonds and borrowing costs.
Further inflation pressures are seen as the S&P Goldman Sachs Commodity Index has been on the rise signaling higher commodity prices. Cotton prices have risen while food prices remain high. Shelter costs continue to run high. It looks like future readings of inflation data could see an uptick and is something the markets as well as the mortgage market will have to closely watch.
The big question will be whether or not the Federal Reserve will continue to hike rates for the remainder of 2023 to fight inflation. Will the Fed allow the policy lag of 200+ basis points in hikes to the Fed Funds Rate to seep into the economy? These are the answers we’ll be looking for inside of two CPI reports and a Core Personal Consumption Expenditure (PCE), the Favorite inflation gauge, before the September Fed meeting.
Bottom line: Whether or not the Fed hikes rates or inflation rises, Americans still need shelter. Families form daily and renters look to be homeowners so the need for housing will always be a constant.
Source: Mortgage Market Guide
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