The Consumer Price Index (CPI) increased 0.4% month over month and 3.7% year over year in September for the second straight month, the U.S. Bureau of Labor Statistics reported on Thursday. The inflation data comes on the heels of a stronger-than-expected September jobs report.
In comparison, the CPI rose 0.6% in August and 0.2% in July.
With the next FOMC meeting on Nov. 1, investors are trying to make sense of the steady September inflation data and its impact on the Fed‘s next rate-hike decision.
“The inflation data, combined with the recent increase in bond yields, which effectively serves as a rate hike by increasing the cost of borrowing, signals the Fed will have little reason to hike rates in the next meeting,” First American Economist Ksenia Potapov said in an emailed statement to HousingWire.
Core inflation, which excludes food and energy prices, rose 4.1% in September, down from August’s 4.3% annual increase. However, it’s still well above the Fed’s 2% target.
Indices that increased in September were rent, owners’ equivalent rent, lodging away from home, motor vehicle insurance, recreation, personal care and new vehicles. Indices that decreased over the month were used cars and trucks and apparel.
Shelter was the largest contributor to inflation in September, accounting for over half of the monthly increase. The higher price of gasoline was another big contributor.
“Overall, shelter costs were up 7.2% year over year in September,” Bright MLS Chief Economist Lisa Sturtevant said in a statement. “Rents of primary residences were up 7.4%.”
What is happening in the housing market ?
Both home prices and mortgage rates continue to rise. If mortgage rates pass 8%, housing market activity will see a contraction, Sturtevant said. However, home prices won’t post a significant decline as supply remains constrained.
“Instead of continuing to raise rates, which will only exacerbate the supply constraint, the Fed should wait to allow the impact of record-high levels of new-apartment construction to flow into the rent data,” Sturtevant said.
She continued: “And all levels of government — from the federal government to local communities — should be committing to policies that will increase the housing supply, expand housing opportunities and help address the growing housing affordability challenge in the U.S.”
Lawrence Yun, chief economist with the National Association of Realtors, said in an emailed statement that inflation and interest rates will fall next year as rent growth slows.
