The Line: Inflation Lower than Expected in December

There was a lot of economic data released this week, so welcome to another lightning-round edition of The Line.

Inflation Lower than Expected in December

The core consumer price index, which excludes food and energy prices, rose 0.2% in December and was 2.6% higher than a year ago. Both figures were slightly below forecast, which was welcome news for the mortgage market.

Here are some other highlights of the CPI report:

• Housing prices rose 0.4% in December and continued to account for the largest share of the monthly increase in CPI.





• Food prices were up 0.7% last month and are 3.1% higher than a year ago.





• Gasoline prices plunged 0.5% in December and were 3.4% lower than December 2024.

To sum up, while still above the Fed’s 2% target, inflation is slowing down. Unfortunately, it’s not slowing fast enough for the Fed to consider a rate cut this month. The markets currently expect the next cut to be in June, but as always that will depend on the next few months of data.

Retail Sales Up More Than Expected

Great headline, but since this is November data, I wouldn’t get too excited about it. That said, there are two reasons to remain optimistic that consumers will keep spending this year:

1. Wages are still rising faster than prices.





2. Large tax refunds are expected this year due to tax law changes, most notably the increase in the SALT deduction cap to $40,000.

Since consumer spending is roughly 70% of GDP, this is great news and should help calm any recession fears even with very weak employment reports the past few months.

Claims Fall for Both Initial and Continuing Unemployment Benefits

The Labor Department’s latest report on jobless claims showed a 9,000 decline in initial claims for unemployment, and a 19,000 decline in continuing claims. More evidence that we are currently in a “no hire, no fire” economy.

Mortgage Rates Fall to Lowest Level in Over Three Years

I saved the best news for last, as the average 30-year conforming mortgage rate fell to 6.06% this week, its lowest level since September of 2022. This is music to the real estate market’s ears after existing home sales fell in 2025 to their lowest level since 1995. Interesting side note: 1995 was when I began my career in real estate as the chief economist of the Real Estate Board of New York, which will be celebrating its 130^th birthday next week. Happy Birthday REBNY!

For all you potential buyers out there, now may be the time to call your mortgage lender.