The Bureau of Labor Statistics (BLS) released its inflation data, and it showed that the October Consumer Price Index (CPI) was flat for the month, but one-tenth lower than estimates of 0.1%. Year-over-year, CPI inflation fell 0.5% and is now at 3.2%. The Core CPI rate, which removes volatile food and energy prices, increased by 0.2%, which was also one-tenth lower than estimates. Year-over-year, Core CPI decreased as well and is now at 4%.
Another BLS inflation report called the Producer Price Index (PPI) showed that inflation on the producer level dropped by 0.5%, which was much lower than estimates of 0.1% and the largest decline since April 2020. Year-over-year, producer inflation fell from 2.2% to 1.3%, and again well beneath estimates of 1.9%. The BLS said that over 80% of the October decline in PPI goods is attributable to the drop in prices for gasoline. The Core rate, which also removes volatile food and energy prices and items the Fed cannot impact, came in flat, which was again much lower than the market estimate of a 0.3% rise. Year-over-year, core inflation fell from 2.7% to 2.4%, which was lower than expectations. Overall, this was a much cooler inflation report, even more so than the drop in the consumer inflation report. Lower producer inflation can lead to lower consumer inflation, as those savings can sometimes be passed to the consumer.
Both of these reports provide a strong case that the Fed is done hiking since their goal was to hike their Fed Funds rate to lower inflation and it is evident that it is occurring. Lower inflation will help push long-term bond pricing up and yields lower which in turn will help influence more favorable mortgage rates going forward.
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By: Jon Iacono