Inflation, Fed Rate Cuts and Home Prices

The latest inflation readings keep the Fed on track to cut rates at their meeting this week, while an important survey sheds light on expectations for home prices. Here are the headlines:

·      More Progress on Consumer Inflation

·      Annual Wholesale Inflation Falls Below Key Level

·      Housing Remains Great Opportunity for Wealth Creation

·      Continuing Jobless Claims Top 1.8 Million for 14th Straight Week

More Progress on Consumer Inflation

The latest Consumer Price Index (CPI) showed more progress on headline inflation, as consumer prices rose 2.5% for the 12 months ending in August. This marked a slowing from July’s 2.9% annual gain and the lowest reading since February 2021.

The Core measure, which strips out volatile food and energy prices, increased 0.3% from July, coming in just above estimates. The annual reading held steady at 3.2%.

Shelter and motor vehicle insurance costs were key reasons for the pricing pressure that was seen last month, as together they made up 89% of the inflation in August. Many other major items (such as energy and new/used cars) actually saw prices flat to down in August. This suggests that most of inflation has been quelled except for a few key areas that are keeping it artificially high.

What’s the bottom line? Cooling consumer inflation and rising unemployment have caused the Fed to acknowledge that they need to begin cutting their benchmark Fed Funds Rate, which is the overnight borrowing rate for banks. With the Fed’s next meeting and Monetary Policy decision coming this Wednesday, September 18, the only question that remains is will members vote for a 25 or 50-basis point cut?

Annual Wholesale Inflation Falls Below Key Level

The Producer Price Index (PPI), which measures inflation on the wholesale level, rose 0.2% in August, with the annual reading falling from a downwardly revised 2.1% to 1.7%. Core PPI, which strips out volatile food and energy prices, rose 0.3% for the month and the year-over-year reading ticked higher from 2.3% to 2.4%.

What’s the bottom line? While the hotter than expected monthly readings did cause the Bond market to react negatively when the data was released last Thursday, producer inflation remains tame. August’s 1.7% year-over-year reading is well below the peak of 11.7% seen in 2022 and keeps the Fed on track to begin cutting rates this week.

Housing Remains Great Opportunity for Wealth Creation

CoreLogic’s Home Price Index showed that home prices nationwide were essentially flat in July after strong growth seen from March through June. Prices were also 4.3% higher when compared to July of last year. CoreLogic forecasts that home prices will rise 0.2% in August and 2.2% in the year going forward, though their forecasts tend to be conservative.

What’s the bottom line? While home price gains have been slowing, they are expected to continue. The latest Fannie Mae and Pulsenomics Home Price Expectations Survey of over 100 of the top housing experts in the country showed that respondents’ average expected appreciation over the next five years is 20% cumulatively. To quantify this, if you bought a $500,000 home and we saw 20% appreciation over the next five years, you would gain $100,000 in appreciation alone.

This survey and appreciation data show that housing remains a great investment for wealth creation.

Continuing Jobless Claims Top 1.8 Million for 14th Straight Week

Initial Jobless Claims were little changed in the latest week (+2,000), with 230,000 people filing for unemployment benefits for the first time. Continuing Claims also saw a slight increase of 5,000, as 1.85 million people are still receiving benefits after filing their initial claim.

What’s the bottom line? The measured week for Initial Jobless Claims included Labor Day, and this could have impacted the data as people often put off filing if they’re traveling or busy for the holiday. Continuing Claims measured the week before Labor Day, so it’s likely they were less impacted by the holiday.

Notably, Continuing Claims have now topped 1.8 million since the start of June, remaining near some of the highest levels seen in recent years. The data continues to suggest that people are collecting benefits for longer periods of time as new job opportunities have become harder to find.

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