Consumer Price Index Stagnates in October

Inflation stagnated in October, following a summer of increases. After the recent pause in rate hikes from the Fed, this reading could signal another pause at the next Fed meeting, and an overall end to rate hikes in the near future.

The Consumer Price Index saw no change in its October reading, which comes after a 0.4% increase in September. Over the last 12 months, the index increased 3.2% before seasonal adjustment.

An increase in the index for shelter both offset a decline in the gasoline index and resulted in the overall index being unchanged for October. The energy index fell 2.5% and the gasoline index fell 5%. On the other end of the spectrum, the food index increased 0.3%, the index for food at home increased 0.3% and the index for food away from home rose 0.4%. 

The index for all items less food and energy—also known as core inflation—rose 0.2%. Indexes that increased in October include rent, owners’ equivalent rent, motor vehicle insurance, medical care, recreation and personal care. Meanwhile, indexes for lodging away from home, used cars and trucks, communication and airline fares all saw decreases.

The all items index rose 3.2% for the 12 months ending October, a slightly smaller increase than the 3.7% seen for the 12 months ending September. The all items less food and energy index rose 4% over the last 12 months, its smallest change since September 2021. The energy index decreased 4.5% over the last 12 months and the food index increased 3.3% over the last year.

“Mortgage rates are plunging with the news of inflation calming,” said NAR Chief Economist Lawrence Yun. “Consumer prices rose by 3.2% in September, even with the rent component still showing a hefty gain of 6.7%. Non-official private sector rent data has shown a 0% to 2% rise, which, if hypothetically used in the official figures, would bring inflation down below the Federal Reserve’s desired inflation target of 2%. The interest rate rises should be over, and the Fed will have to consider cutting interest rates seriously. In the meantime, the bond market is reacting as if the Fed will be cutting interest rates next year. Mortgage rates look to head toward 7% in a few months and into the 6% range by the spring of 2024.”

“With the market asking rents notching a 5th month of decline, I expect further slowing of shelter inflation in the months ahead,” said Danielle Hale, chief economist for “For now shelter costs remain high and continue to be a driver of overall inflation, accounting for 70% of the annual increase. Households looking to move to a new rental who haven’t moved recently are likely to be in for some sticker shock. Even though rents dipped 0.7% from a year ago in September, they’re down less than 2% from the 2022 peak and up 24% from 4 years ago. Even though rents are expensive, they’re still a lower-cost option than buying a starter home in all but 3 of the 50 largest metro areas as rising home prices and mortgage rates raise the stakes for home buyers. And while mortgage rates have declined in recent weeks, they remain almost half a percent higher than they were when the above rent vs. buy analysis was conducted. In other words, the market is likely more tilted in favor of renting now compared to August. A near-record number of multi-family homes are under construction, and this surge of homes will provide relief on price as they become available over time, but sky-high demand from households choosing to rent over buying amid widespread unaffordability will keep rents from falling too far. Absorption rates–the pace at which newly constructed apartments go from vacant to occupied–remain above pre-pandemic norms and are especially high for the lowest rent units, confirming that demand for affordable rentals remains high. In the meanwhile, consumers who need to move and stick to a budget should explore a variety of options and consider different locations (urban vs. suburban) and types of rental homes (single-family vs. apartments) to find one that fits. Households looking to move soon will note that rents tend to ease, seasonally, in the winter, so in the next few months renters will likely have a seasonal edge.”

For the full report, click here.

Source link

About The Author

Scroll to Top