Favorable Inflation Data

Raleigh Mortgage GroupUncategorized

Investors were focused on the inflation data released this week, and they were pleased with the figures overall.  As a result, mortgage rates moved a little lower. 

The Consumer Price Index (CPI) is one of the most widely followed inflation indicators. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors often look at core CPI, which excludes the food and energy components. In December, Core CPI was 3.9% higher than a year ago, down from an annual rate of 4.0% last month and the lowest level since September 2021.

While the core CPI annual rate has fallen from a peak of 6.6% in September 2022, it remains far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Progress in the battle against inflation has been slow due to persistently high prices in certain areas. Shelter (housing) costs remained elevated and again were responsible for the largest portion of the increase, but they are expected to slowly ease this year. Other categories with large monthly increases included airline fares, medical care, and used vehicle prices.

Lower rates have turbocharged applications for home refinancing to start the new year, according to the latest data from the Mortgage Bankers Association (MBA). Applications to refinance surged 19% from last week and were 30% higher than one year ago, making the last few weeks the best period since 2021. Purchase applications rose 6% from the prior week but remain down 16% from last year at this time.

While the core CPI annual rate has fallen from a peak of 6.6% in September 2022, it remains far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Progress in the battle against inflation has been slow due to persistently high prices in certain areas. Shelter (housing) costs remained elevated and again were responsible for the largest portion of the increase, but they are expected to slowly ease this year. Other categories with large monthly increases included airline fares, medical care, and used vehicle prices.

Lower rates have turbocharged applications for home refinancing to start the new year, according to the latest data from the Mortgage Bankers Association (MBA). Applications to refinance surged 19% from last week and were 30% higher than one year ago, making the last few weeks the best period since 2021. Purchase applications rose 6% from the prior week but remain down 16% from last year at this time.

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Import Prices and Retail Sales will come out on Wednesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will be released on Thursday and Existing Home Sales on Friday. Mortgage markets will be closed on Monday in observance of MLK Day.

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