By Gregory Heym, BHS Chief Economist and and host of Crossing The Line
Today, we present the latest on inflation. Spoiler alert: it’s not good.
For those of you who are still with me, here are the details of the January consumer price index report:
- The CPI rose 0.5% last month and was 3% higher than a year ago. Both figures were above forecast.
- Shelter continues to be the main driver of inflation, with prices up 0.4% last month. Shelter accounted for nearly 30% of the total monthly increase in prices.
- Other notable increases last month were seen in energy (+1.1%) and food (+0.4%).
- Core CPI—which excludes food and energy prices—rose 0.4% last month and was 3.3% higher than a year ago.
Any way you look at it, this report is a real bummer. Whenever inflation data comes in above forecast, you can count on two things: higher mortgage rates and lower stock prices. That hurts the housing market, which had just started celebrating the fact that mortgage rates just fell for the fourth straight week.
Forget about another decline in mortgage rates next week, and you can also forget about any Fed rate cuts this year. In remarks this week before the Senate Banking committee, Fed chair Powell said, “we do not need to be in a hurry to adjust our policy stance.” Translation: we won’t be cutting rates anytime soon, and we probably shouldn’t have cut rates so aggressively last year.
The big takeaways from the January CPI report are:
- After solid progress in the first nine months of 2024, inflation started rising again.
- Economic growth last quarter was solid, thanks to a strong increase in consumer spending.
- The unemployment rate is now at 4.0%, layoffs are at low levels, and wages are growing faster than prices.
- Don’t expect inflation—or mortgage rates—to come down meaningfully for a while.
Many loyal readers may point out how I always say the core PCE index is the most important inflation gauge, and not the CPI. That’s true, and we will get the January reading of the core PCE index on February 28. Let’s hope it shows show progress on inflation; we could certainly use it.