The Producer Price Index, which measures wholesale inflation, rose 0.4% in September. This reading was .2% higher than expected. Year over year, PPI decreased from 8.7% to 8.5%. While it cooled a little bit, it was still .2% higher than the 8.4% expected. The Core Rate, which strips out food and energy prices, was up 0.3% keeping it right in line with expectations. Year over year, the Core Rate decreased from 7.3% to 7.2% which was slightly lower than expected.

On the consumer side, which is more of an accurate read on inflation because it actually shows inflation that consumers feel, the September Consumer Price Index (CPI) Report showed that overall inflation increased by 0.4%. This was double the 0.2% expected. Year over year, inflation declined from 8.3% to 8.2%, but it was expected to decline to 8.1%. What we really need to look at here is the Core Rate because it strips out food and energy prices. The Core Rate, increased by 0.6%, which was hotter than the 0.5% that was expected. Because of this, year-over-year core inflation increased from 6.3% to 6.6% making it hotter than the 6.5% expected.

Shelter rose by 0.7% which is in line with the highest increase since 1991. Rents were up by 0.8% last month and are now up 7.2% year over year from 6.7%. Owner’s equivalent rent, which tries to capture the rise in home prices, but usually falls short, also rose 0.8%. Year over year, it is up 6.7% from 6.3%. Even though CPI rental costs are still catching up, real rental costs have started to come off of their peak and slightly decline.
Looking at the internals we see that energy prices fell 2% from a month ago. This brings the annual gain to 20%. Gasoline prices fell 5% and are up 18% year over year. Food prices, which make up 14% of the CPI, rose by 0.8% in September. This brings the year-over-year gain to 11%. Medical care costs were a main factor too as they rose 0.8% last month and were up 6% year over year.

Indeed, this is a negative report. We feel that perhaps the worst is now behind us. This September reading is the last low figure from 2021 that needs to be replaced. Moving forward, the comparisons will get much tougher. Keeping this in mind, we believe inflation will start dropping, which will hopefully have a positive effect on mortgage rates.


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