August 14, 2023

Inflation Softens, but is it Enough for the Fed?

The U.S. Bureau of Labor Statistics released their Consumer Price Index (CPI) for the month of July, and it showed that headline inflation increased by 0.2%, which came in lower than consensus estimates of 0.3%. Annual headline CPI inflation increased from 3.0% to 3.2%, which was in line with estimates.

Core CPI inflation, which removes volatile food and energy prices, increased by 0.2% and was in line with estimates. Year over year, Core CPI inflation decreased from 4.8% to 4.7%, which was beneath expectations of 4.8% and the smallest increase in the index since October 2021.

Breaking down the report further, it is prevalent that rents are continuing to increase as rents rose 0.4% last month and are up 8% year over year. The owner’s equivalent rent, which is basically phone calls to homeowners asking them what they think their home would rent for, also rose, jumping from 0.4% to 0.5% and is up 7.7% year over year. Used cars fell 1.3%, while new cars were down 0.1%. Motor vehicle insurance rose 2% last month and is up almost 17% year over year. Energy prices rose 0.2%, gasoline only rose 0.1% and is now down 20% year over year. Food prices rose 0.2% and is now up 4.9% year over year. These are both lower than the markets had feared, even though West Tesas Intermediate, which is one of the three benchmarks in oil pricing, increased 16% and gasoline prices rose 8%. Airline fares dropped another 8.1% and are now down 19% year over year.

Overall, this was softer and somewhat in line with the inflation report estimates. As the picture improves with inflation, longer term Bond investments will become more attractive and will increase in price which would aid in the lowering of mortgage interest rates. Also, all eyes from the Fed are focused on these data points and as their goal of easing inflation becomes closer, they may slow down their aggressiveness and reverse action on more Fed rate hikes. The next Fed meeting is on September 19th-20th at the Jackson Hole Economic Symposium.

Sources :

https://bit.ly/3QI4tIu

https://www.bls.gov/cpi/

By: Jon Iacono
A Family

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