Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today, we have the latest on prices, consumer spending, and mortgage rates.
Consumer Prices Up 3.2% From a Year Ago
The consumer price index rose 0.4% in February and was 3.2% higher than a year ago. The annual increase was slightly above the Dow Jones forecast.
Core inflation—which excludes food and energy prices—also rose 0.4% last month and was 3.8% higher than a year ago. Both figures were slightly higher than expected.
So not the best news, but certainly not the worst.
Those were the big headlines of the CPI report, here’s some other noteworthy items:
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The 0.4% monthly gain in prices was the biggest since September.
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After declining the prior four months, gasoline prices jumped 3.8% in February. The recent decline in gas prices had been the main reason core CPI was running higher than the headline number.
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The shelter and gasoline indexes together accounted for over 60% of the monthly increase in the overall CPI number.
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Food prices were unchanged last month. This is good news, as consumers are spending the highest percentage of their disposable income on food in 30 years.
The big takeaway from this report is that the Fed hasn’t defeated inflation yet. Great strides have been made—in June 2022 prices were rising at a 9% annual rate—but it’s still too early to expect rate cuts. We also found out yesterday that producer prices rose much more than expected last month, although they were just 1.6% higher than a year ago.
In football, the red zone—the area of the field between the 20-yard line and the end zone—can be the toughest place to score. It seems that getting inflation to fall from 4% to 2% may present a similar challenge for the Fed. Let’s hope they do a better job getting in the end zone than the Jets.
Retail Sales Rose 0.6% in February
After their biggest decline in almost a year in January, retail sales rebounded nicely last month. That said, the 0.6% increase in spending was lower than the 0.8% gain economists were expecting. For once, economists were too optimistic.
The biggest increases in activity were in building materials and garden equipment (+2.2%) and moto vehicle and parts dealers (+1.6%). Furniture sales fell 1.1% last month, the biggest decline of any major category.
As we point out all the time, consumer spending accounts for 70% of GDP, so we watch it very carefully. After retail sales had declined in three of the past four months, there was concern that consumers were finally tapped out after maxing out their credit cards to the tune of $1.1 trillion. One report doesn’t alleviate that fear, but that doesn’t mean we can’t be happy about it either.
Mortgage Rates Fall for the Second Straight Week
The average 30-year conforming mortgage rate fell to 6.74% this week. Rates have now declined for two weeks in a row, to their lowest level since early February.
